full strength as the fed decides whether it needs it to turn off the autopilot. shootertop crane e.a. -- top trade negotiator goes toe to toe with the u.s. counterpart. and earnings extravaganza. one quarter of s&p companies report earnings this week to see how much earnings growth has slowed. daybreak.""bloomberg welcome, lisa. there is so much we are going to learn this week. >> and at least it is not 400 degrees below zero like it is in the midwest. let's get you caught up with what is going on in markets to start this big week. lot -- a lot of bearishness this week. we know trade talks are going to be held in washington, d.c.

stoxx breaking their two day gaining streak. crude falling as america's rig count rose for the first time this year. david: time now for the morning brief. tomorrow the u.k. parliament is set to vote on a series of amendments to prime minister may's brexit. wednesday, washington the negotiation's to try to avoid further trade sanctions. fed'sl also get the latest rate decision, with everyone waiting to see if it signals any change in the balance sheet. friday is jobs day for the united states coming off surprisingly strong numbers last month. .e are joined by marty schenker startassert off -- let's off with mick mulvaney in the white house. >> no one wants a government

shutdown. it is not a desired end. but when a president vetoes a bill put in front of him on a spending package, sometimes that has the effect of shutting the government down. we don't go into this trying to shut the government down. david: they don't go into it try and come of it they are not trying, but they are not avoiding it either. itorter: it struck me that would be virtually impossible for any politician to want to go through this again, but apparently donald trump feels that it worked. lisa: ok. i guess that giving him some edification with that, the stock market rose 10% if you look at the s&p during that period. there is not a feeling of protracted weakness. is that a sign that it doesn't really matter. reporter: i don't think the markets thought this was ever going to last indefinitely. this is something that needs to be resolved, will be resolved. i think they will come to the

end. there will be a little swordplay, and if he has to, he will use an emergency action, but the shutdown i think would not happen again. care? do we >> i think at the end, you kind of do have to care. it will affect the economy. the talk is some $6 billion out of u.s. economic growth during this period. if it happened again, it certainly would have an effect on business decisions. i think people don't think it will. will anything really happen in terms of a business strategy? no. normallye thing we care about is trade, particularly with china. that is coming up this week is our second story as we had this top level delegation from china coming in to meet with robert lighthizer. we are going to show an illustration of what may be has to deal with. it shows the reduction of

profitability of chinese companies. there is a real slowdown in china, bardi. how much -- china, marty. how much does it weaken his position? >> i think both sides are looking for a way to say there is victory here. whether it really truly is a victory, we will have to wait and see. the issue with intellectual property is the thing i'm looking for. lisa: i'm trying to understand how much what happened in the drop in popularity and president trump, what that does to his negotiating position heading into these talks. >> i think it creates a real incentive for him to declare victory, and he has said many times he thinks things are going very well. if these talks should breakdown in some way, it would be very bad for his popularity. lisa: vince, can you come in here quickly? i want to get your thoughts on what the market is positioning for.

is there the expectation there will be some sort of deal? >> there's a lot of hope this is going to come together in some way, shape or form. even if they get a solid framework to go forward, the markets will be happy with that. the problem is, just to be a little bit of a skeptic come up between now and march 1 there is a lot of time for trump two the to bang the drum and not agree with what china is bringing to the table. if they are not ready to negotiate on that, any victory will probably be a shallow one. david: the united states is pretty clear on what they want. intellectual property, technology transfer. >> they continued to say they do not steal intellectual property, so what is there to negotiate? a real breakthrough would be for them to concede the point. we will see this wednesday whether there is such a breakthrough. lisa: meanwhile, we have the u.s. economy as sort of the wildcard. we talked about how china is

having a slowdown. we are prepping for a very big earnings week. in the tech sector in particular, people are expecting earnings recession. how much is that already priced into the market? >> i think we seen it with apple. expectations are very low that tech is going to carry the day as they have in the past. we will see. if there are surprise earnings on the upside, a lot of this conversation will get washed over, and he hopes even further for china trade negotiations will rise. down, with all the up and the stock market is up nicely under president trump. he is right about claiming some credit. >> he has to absolutely claim some credit. the d regulation push, the tax cuts have all seeped into the market elation -- the marketplace, but that could reseed if they do not reach some sort of deal with china. caterpillar is coming out in a few minutes, and that will say a lot about the chinese economy itself.

lisa: the question i have with intellectual property, that is off the table, right? >> i think they will. lisa: the reason i say that is if president trump wants to declare a victory, how can they declare victory? how do they get anything done with this? >> a framework on which they can retain agreement. these guys at the table are not going to reach an agreement, but they will agree to reach an agreement, and i think that would be a breakthrough. lisa: so talk about getting talks about talk. david: there's not going to be agreement this week. how much is enough so they can get through the next one? >> they need to get to that point where they agree that there is an issue on electoral property. this group cannot reach a trade deal, but the market needs to see the two sides one foot following the other, getting down the path towards an agreement.

if we keep stumbling as we do on intellectual property, still the key issue, tariffs and soybeans are a low hanging fruit. that's not a big deal. lisa: thank you. wheelie appreciate you -- we really appreciate your been with us. some breaking news, blackberry as chief brian palma executive officer, coming from cisco. president and chief operating officer, coming from cisco. coming up, more on the up legations of trade talks with the u.s. and china with mark chandler. from new york, this is bloomberg.

viviana: there's a deal today that will combine key producers of components for the someonductor industry for $3.4 billion in an all stock deal. the combined company will have a -- would have a revenue of $3 billion. more problems for nissan in the wake of the arrest of former chairman carlos ghosn. know ifrs want to nissan maintained adequate control to prevent improper payments. the company says it is cooperating. deutsche bank has received a commitment for more investment from qatar.

bloomberg has learned the money is likely to come from the sovereign wealth fund. two other investment deals also own a stake in deutsche's. the lender has been trying to regain footing after years of restructuring. that is your bloomberg business flash. david: thanks so much, viviana. washington remains in the spotlight this week is the chinese trade delegation meets with u.s. trade representative robert lighthizer and secretary steven mnuchin. we welcome now marc chandler. good to have you. guest: thank you. always a pleasure. david: you saw the chart indicating what is happening with the dollar and the yuan after the last year. say to you?is guest: it's the chinese drew a line -- the chinese drew a line in the sand.

they are using policy to stimulate the economy. 6.7 on the downside, 7.0 on the toide the kind of range avoid antagonizing the u.s. administration. lisa: what is interesting to me is typically people look at currency as a prophecy on how people feel about the country. in this case, it doesn't really work that way because it is more heavily controlled. profit growth has been slowing substantially, even starting to reseed. is this even sufficient pressure? buy --a, the russo to the rules don't apply. guest: here's what i find the anomaly is. later this week, the u.s. will report the first time the look at gdp. we will keep revising for several years. china does it once and it goes away. are our numbers really more

accurate? what is gdp? i think oftentimes it is easier to see a problem in other countries that it is here. for example, one of the issues to trade is the chinese have state owned enterprises which are unfair to foreign per dispense. then a look at the u.s. 10 years after the crisis. fannie mae and freddy mike still on the housing industry. lisa: so whenever we malign china for being in control of government, the u.s. isn't any better. guest: socialism is only when the banks get in trouble. then it is ok to bailout these places. david: so whatever the numbers, we all agree china's growth is slowing. how much of the weakness in the chinese economy is trade, and how much of it is endemic to the economy? guest: i'm looking at these numbers myself. you can't really rely on them.

but only part of it is really from trade, from u.s. sanctions. these things that affect trade like falling prices of semi conductors oil and other commodities, china has a demented -- has a domestic problem as well. isa: china seems like bigger wildcard. the same time, the narrative is shifting to more concerned about europe right now. if you take a look at this chart, you can see the ecb purchase program continuing to ramp up. gross didn't really pick up that much -- growth didn't really pick up that much. now it is falling off again. concern to bigger global economic growth at this point, given the fact they are running out of ammunition? it is clear that there is a negative trend in the economy there broadly. guest: i think in general, the key theme is renewed divergence. we are going to get the gdp

number later for q4. got .1,be lucky if they .2 been the quarter. q3, and thected in rebound in q4 is very lector -- very lackluster. david: you had mario draghi say in the risk is to the downside, which may be saying they will not be raising rates anytime soon. guest: sometime around the middle of the year, the ecb may expand their balance sheet, but by assets. lisa: the driest towel on the rack, the cleanest shirt in the laundry. what are other ways people describe the united states? [laughter] david: let's come back to the united states. is there divergence in respect

to monetary policy? we thought we were on autopilot with respect to the balance sheet. we will hear from the fed this week. it sums what they are coming off that position. are they heading in the same direction as the european central bank? guest: i think the federal reserve will stick to their idea that they still have to raise interest rates with the government reopening, with the possibility trade tensions ease, the economy can go above trend with inflation your target. economy lookss relatively better than others. lisa: why is the dollar we getting so much? guest: i'm not sure it is weakening so much. last week the euro fell below the 1.13 level. break out to the upside proved false. i think the dollar is in this trading range primarily because people think the fed is still out of the picture. i think the pessimism has been overplayed, whether it is

because of the stock market fall in december, the balance sheet. i think the pendulum is beginning to slowly swing back. lisa: hold on a second. so using the dollar could strengthen? how much? guest: maybe towards 110 against the euro. somewhere around the middle of the year, the ecb eases policy through this long term loan operation, and i still have the federal reserve raising rates in july. i think there could be two times , but one time is being cautious. the market, when i look at the july fed future, the market is pricing in about a one in three chance of a hike in the middle of the year. the market has swung very far away from the idea that could cut in the first half. david: marc chandler is going to be staying with us. coming up, the strongest economy in the history of our nation. that's what president trump has said his administration has caused.

the numbers may not add up. this is bloomberg.

♪ david: the stock market overall has liked what it's seen with the trumpet ministration, and president hasn't been shy bout claiming -- the trump administration, and the president hasn't been shy about credit. give us your analysis. you've gone through a series of factors to look at recent presidents, and it comes up with some surprising results. reporter: everybody can relate to poker. if clinton had a royal flush, trump's got three of a pair. david: looking at the factors, how much of it is because the budget deficit went down? by ther: what we did -- way, we did this because our editors said what about this recession talk that is percolating and getting louder?

maybe there is a way to look at this. where is the economy going? how much has it improved? we will do it under seven presidents, including trump. it turns out clinton's number one on many of them. most of them. obama comes in second. president reagan comes in third. fourth. comes in david: we are going down the list before we get to donald trump. [laughter] reporter: then jimmy carter, surprisingly, who was number one on a few things. then there is trump. david: and then george w. bush, right? w.orter: he's behind w, but had the worst economy you could

possibly have. lisa: let's zoom out for a second. there's a key question, how much control do presidents have over the economy? reporter: that's the point. we look at it as where did the economy go when that president was in office? how much did it improve? if a president wants to take theit, once to -- and by way, obama didn't really do that. even clinton was reluctant to do that. and certainly the bushes didn't want to take credit for the economy. trump is really the first president to say i own it. so if it is only fair to say where did the economy go since you got into office. marc: i want to bring in chandler from bannockburn. has brought is a lot of volatility. thet: i think the growth in

u.s. economy has generally slowed down, except occasional surges that probably have little to do with the president, like the tech bubble. i think the question i would have is one president gives us a bubble and the president hast -- gives us a bubble and the next has to clean it up. reporter: the way i would look at trump, you mentioned volatility. of of the characteristics the latter years of the obama economy, when janet yellen was in charge of the fed, is you had the lowest volatility in financial markets in our lifetime. lower than under 20 years of greenspan. lower than eight years of bernanke. then all of a sudden, trump says i'm going to give this up. i'm going to give up janet yellen with all her intellectual clout -- and by the way, janet yellen was willing to say let's run the economy a little hot because i want to get labor per dissipation up.

i want to make sure -- labor participation up. donald trump says no. the first day jay powell gets into office, volatility sores. lisa: -- volatility soars. marc, one thing i wonder about is how political will have become with their investing strategies. -- political people have become with their investing strategies. guest: i think that this move towards passive investing is a emotionalize and take politics out of it by looking at the etf space. in general, the strength of the u.s. economy, although it might not be as strong as under other presidents, relative to the euro zone, to japan, to the chronic slowdown in china, the u.s. economy still looks good compared to other countries,

even if not compared to our own history. reporter: i would say this, though, about trump. why i think there are warning signs. i think the deficit as a percentage of gdp is really accelerating under him. it was going the opposite direction under clinton and obama. lisa: we will continue to talk about that. bloomberg editor and chief emeritus matt winkler, thank you for being with us. marc chandler staying with us. coming up, we have more on earnings. this is bloomberg.

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leave no room behind with xfi pods. simple. easy. awesome. click or visit a retail store today. ♪ lisa: we are starting a very busy week on a down note. downq and s&p futures both , though off of their earlier lows.

the ftse 100 is having its longest losing streak since august. let's get a sense of what is going on outside of the broad stock indices. emerging markets currently the highest since june, expectations of a more dovish fed. tw doing much in the u.s. ahead of the fed meeting. the most atging, one point since august, to highest level in a year. gold not providing a hit. we are getting headlines with caterpillar just crossing the tape. fourth quarter adjusted earnings of55, missing the estimate $2.59. fourth quarter revenues just shy of the $14.36 billion expectation. caterpillar is often thought of as a bellwether for the u.s. economy and global growth. ,f it is missing expectations

it will be viewed as a bearish sign for the u.s. economy. joining us is bloomberg intelligence's senior analyst, and still with us is marc chandler of bannockburn. do you think people are going to view this more broadly as a negative on the economy, or specifically a caterpillar story? reporter: they haven't missed in a long time. i'd like to see what is -- in fact, i want to bring this to you, too. they expect 2019 profit of $11.75 to $12.75 a share. the expectations for next year are fairly modest. 6% revenue, 9% eps is the guidance. i think there's going to be a lot of concern about the mess. it's a long time since they've missed. there are more clouds looking forward than there have been in a long time. commodity and energy prices are down. europe is slower. china is still good, but down

quite a bit from where it was. there are more risks in 2019 then there have been in at least two years. david: how critical will be looking forward guidance for 2019? part of what they said is that our outlook assumes a modest ales increase, as well as macroeconomic and geopolitical environment. reporter: they are hedging. i thought they would come out conservative because they want to set the bar low. cat gets about 6% sales out of sign a. it has grown -- out of china. lisa: you are saying there are a lot of headwinds. this we've known. what makes me curious is the fact that they missed already lowered expectations. typically analyst expectations are lowball estimates. that has typically been the

trend. the fact that caterpillar missed and typically don't, does that give you a bigger warning sign of just how big those clouds are? reporter: i think what it is saying is how fast things are turning down. i thought the fourth quarter would actually be fine because leverage has been really good. they've been able to overcome cost problems because they put price increases through, which they never do. markets have not been a problem, and sales have been good. two missed by mitch but -- two missed by this much, i'm curious -- to miss by this much, i'm curious. they had another year of good earnings, and paid the price for that comment. but you can't grow at 40%, 50% for a long time. more topline headwinds. there is more to be concerned about in 2019. david: karen, thank you for being here.

that is our own karen huber heart -- karen ubelhart. it is a big week for tech giants. apple kicks off tomorrow, and amazon.facebook next up is the faangs. we could have a chart earlier indicating we are going into an earnings recession. guest: that is part of the reason we have seen such volatility in the stock market. people wonder whether the peak is behind us. back last year when the fed was shirking its balance sheet, the was shrinking- its balance sheet, the stock market was hitting record highs. i think the faangs are finding some support out here. they have been beaten up. i think people still like the faangs as high points of the new economy. lisa: caterpillar shares in premarket trading down nearly 4%

, 3.5 percent, give or take. i am struck by how much this is dragging futures down ahead of the open. a disappointment like this in such a bellwether company, even with all the pessimism baked in, what does this tell you about how little has been priced in about synchronized global slowdown that has become a catchphrase for a lot of people? guest: i don't know. it is easy to read a lot of negativity into these numbers, but here's what i think happens. technically we are kind of weak. this past friday the s&p 500 gapped higher in the open. the week previous, too. technically the stock market was week coming in after that opening on friday. still struggling after the old high we saw. i think even if we push back down to 2600 in the s&p, it is not the end of the world. we've gone up like 14% from the

lows. we are just consolidating now. david: thus far with earnings, we seen some big divergence. we seen some people beat by a lot and miss by a lot. we don't have the same degree of correlation you have. stocks are going in individual directions on their earnings. guest: we see this in other markets as well. people are not just buying or selling across the board, but really being much more picking of what they want to buy. lisa: we seen different kinds of pricing power with different companies. some able to raise prices -- procter & gamble unthinking of -- others not so much. is there any bigger take away have about inflation, about of the priceme increases to consumers? guest: we have seen inflation in services, but deflation goods. the service sector is still relating robust demand in the best, while the weakness in --

in the u.s., while the weakness in services speaks to international cup addition -- international competition. david: thank you for being with us today. viviana hurtado is here was first word news. viviana: the trump administration has lifted sanctions against three companies tied to vladimir putin. one is an alumina producer. congressional democrats -- is an aluminum producer. congressional democrats are trying to block the action. former starbucks chairman howard schultz says he is seriously think about running for president in 2020 as an independent, telling "60 minutes" americans are looking for a better choice. democrats are blasting this move, saying it could help reelect president trump. baker hughes plans to eliminate carbon emissions on a net basis

by 2050. the ceo spoke with bloomberg's alix steel. >> by 2030 we are going to reduce by $.50 the carbon emissions. 50% the forward -- by carbon emissions. as we go forward, it is in line with what our customers are talking about. viviana: global news 24 hours a day, on air and on tictoc, powered by more than 2700 journalists and analysts in more than 120 countries. i'm viviana hurtado. this is bloomberg. david: we said she is on assignment. now we know what she is doing, talking to baker hughes. lisa: i have to wonder how much these big oil executives are doing this out of necessity for their business models. frankly, there is the threat that diversification of energy sources and political pressure to reduce fossil fuels will eliminate their businesses, or at least reduce profit ability substantially. it is not entirely surprising,

but he made some very bold claims. we should get some more color on caterpillar. caterpillar did miss expectation. the full year adjusted earnings-per-share $11.75 to $12.75. clearly ratcheting lower. also missing on earnings-per-share, saying they really are seeing a modest outlook for global growth, from china in particular. david: it is all because of china, basically. lisa: join the club, right? [laughter] lisa: coming up, ray dalio's winning year, making billions in 2018 despite a great year for hedge funds. more on that in today's wall street beat. this is bloomberg.

viviana: this is "bloomberg daybreak." bny's management's director of market strategy. with your bloomberg business flash, siemens is offering last-minute concessions to save their planned rail merger, but bloomberg has learned they have fallen short. the companies have agreed to settle longer licensing agreements. the world's largest iron ore minor has to dividend payments , its a disaster in brazil second deadly disaster in three years. funds have been

frozen to be sure it will be able to compensate victims and cleanup for the -- and pay for the cleanup. cuts are expected to affect the majority of tesco's 732 largest stores. the latest report says tesco has 440,000 employees. that is your bluebird business flash. david: we turn at -- your bluebird business flash. david: we turn now to walls -- your bloomberg business flash. david: we turn now to wall street. deutsche bank said to have won new investments from qatar. despite a tough year for hedge funds, bridgewater beat their rivals, making a combined $13 billion. ceo howardks' former schultz says he is seriously thinking about a 2020 white house run, which puts him with

about 50 other people. [laughter] lisa: joining us now, jason kelly, bloomberg's new york bureau chief and "bloomberg businessweek" post. let's start with deutsche bank. very interesting. sort of an interesting political move given all the tensions between qatar and saudi arabia. qatar is and well known. the qatar investment authority is the vehicle that would be doing this specific investment, the same fund that has backed volkswagen $320 billion. already have a stake in deutsche bank, so doubling down ahead of this rumored merger with commerzbank. david: the negative valuation is pretty attractive at this point. reporter: probably.

lisa: i have to wonder what valuation with the merger look like. would this be a retail bank, essentially, in germany? we know those struggle. or would it be a global investment bank? reporter: all we know is there have been a lot of talks on going that the german government has a vested interest in this more politically than anything. they are not going to let deutsche bank go out of business. the name alone is going to survive. david: there's no question the government is not going to let them disappear. at the same time, they will not heavy deutsche bank that is as aggressive and takes as much risk as they did before the financial crisis. reporter: we seen them pare back in the united states. their ambitions have been curtailed for sure. david: bridgewater and renaissance technologies made $13 billion combined between the two of them. ray dalio did very well, as did

mr. simon. the thing that struck me in this piece is six out of 10 hedge funds lost money last year. reporter: isn't that amazing? lisa: the highest proportion since the financial crisis. reporter: you read this story, and you are like hedge funds are doing ok. no, you read that, and oh we have been talking about the existential crisis and hedge funds, and it is six and 10. lisa: they are two of the most consistently outperforming hedge fund managers out there. they use neutral strategies. they are not looking at bonds or stocks and going full on either one. and they use hard-core math. jim simon created the math museum in new york. this is very much algorithmic trading, but not all algorithmic trading is the same. they have the secret sauce, and right now they are cashing in. david: it is a good point. each of them have a system.

these are not stock pickers. lisa: that's exactly right. but to your point, two very different systems. proving that you can do it different ways, but you can't just be feeling like this or that. you do feel like maybe too many hedge fund managers have been not up to snuff. lisa: the prophets accounted for half of the profits made by the top 20 redditors. -- 20 managers. howard schultz, the former ceo of starbucks, mulling an independent run for the 2020 presidency. democrats coming out and saying don't do it. reporter: please don't do it. worrieds really about this, partly because of just splitting the votes. some moderates that might have gone to trump before. howard schultz last night very much meeting the case that there is this vast middle.

you saw, harris in oakland yesterday -- you saw kamala harris in oakland yesterday certainly trying to prove her progressive credit. path is unclear. howard schultz not officially in the race yet. still in the exploratory phase. he does have the ability to hang around a bit longer, especially if he is self funding. lisa: i think it is really interesting the intersection of corporate america and politics. is acceptableit and encouraged as far as management style from the voters , and at what point it is a detriment. reporter: his record as a ceo, and certainly starbucks, people do love it as a product, but how it was run as a company, there certainly have been questions of late. you had that great interview

last week that brought up a lot of the social issues they encountered down in philadelphia. david: that's exactly right. if yought they asked him are willing to fund it, no problem. that's a lot of money. many thanks to jason kelly. you can tune into jason on bloomberg radio daily. coming up, day seven of the leadership standoff in venezuela. the national a sibley president one wide-out -- national idoembly president juan gua calls for a nationwide protest. this is bloomberg.

david: caterpillar items to their earnings, missed by both earnings-per-share and revenue. in premarket down a little over 6%. it really had a lot to do with china, we believe.

this chart illustrates the green and red, the ppis for china and the caterpillar stock. it basically just tracks it. lisa: sales in asia-pacific client, partially offset by other demand in the region. currency impacts also can treated to the sales decline. on the top live blog about caterpillar earnings, they note that they did not give a lot of color around this earnings miss, which is unusual ahead of what we normally see ahead of the earnings calls. interesting to see that. david: we turn now to venezuela as the standoff between nicolas maduro and juan guaido continues. joining us is bloomberg's caracas bureau chief. patricia, give us an update of where we are right now in caracas. reporter: the national assembly and his guaido supporters walking the streets

passing out a measure that promises embassy -- promises amnesty against any members of the armed forces that defect. we have seen some willingly receive the documents, and others burn it. meanwhile, nicolas maduro was shown watching tanks firing rounds and ran alongside soldiers in a town east of the capital lisa: -- of the capital. lisa: one thing that stuck out to me, and the united kingdom authorities are not allowing nicolas maduro to pull out gold from holdings there. federal reserve and others in the u.s. won't allow money out of the u.s. how does that factor into this struggle? reporter: it adds a lot of pressure. mike pompeo has been urging countries to isolate the regime economically. reporting that the u.s.

government has hated accounts of the federal reserve and other insured banks, so this will add a lot of pressure to the maduro regime david: we have any indication of crocs was in the military? withinek -- of cracks the military? last week it seemed like the leadership within the military was solid. reporter: we know it is much more comfortable and easy to defect outside of the country. guaido has said he's been having some of those conversations, but of course they have to be done confidentially. lisa: we are looking at images of military action, riots, violence. how much violence is there actually currently in venezuela? have we seen any military action from the troops as they decide who to support? reporter: we have seen more than 20 deaths in the protests since about a week ago. lled forht, guaido ca

two new protests on wednesday and saturday. david: what is the situation with the u.s. embassy down there? we have people down there, some marines. reporter: maduro ordered diplomats at the u.s. and be -- the u.s. embassy that they had 72 hours to leave. we saw them extend that to 30 days on saturday. apparently maduro wants to have the same relationship with the u.s. as cuba, which is only minimal staffing to retain diplomatic relations. lisa: have you seen that more people are leaving the country as this goes on, or are people thinking they are going to stay? reporter: that situation has pretty much remained. of course, we seen a large amount of people leave venezuela in the past five years. david: we've heard various reports about people not being able to bosch food -- to buy

food, shelves in the stores being open. has that gotten worse were stayed the same? reporter: i think about the same. there is a deep, deep short of it -- deep shortage of and have out of equipm -- of antibiotics and other equipment. david: thank you, patricia laya from caracas. director, the ey young of market strategy here to talk about the u.s. economy, china trade negotiations, and earnings coming out. live from new york, this is bloomberg.

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"all sites are green." all of which helps you do more than your customers thought possible. comcast business. beyond fast. unstopand it's strengthenedting place, the by xfi pods,gateway. which plug in to extend the wifi even farther, past anything that stands in its way. ...well almost anything. leave no room behind with xfi pods. simple. easy. awesome. click or visit a retail store today. ♪ david: back to business. the u.s. government is returning

to full strength as the fed meets to decide whether the economy needs it to turn off the autopilot. trades top negotiator goes toto with his u.s. counterpart. will china offer enough? and a quarter of s&p companies report earnings this week, with markets watching to see how much earnings growth has slowed. welcome to "bloomberg daybreak" on this monday, january 28. i'm david westin with lisa abramowicz. alix steel is on assignment. ahead of the u.s. open, let's take a look at the actual numbers. stocks in europe extending their losses. the dow jones futures extending their losses as well after caterpillars miss. the u.n. the strongest -- the the the -- the yuan

strongest since august. america's rig count rose for the first time this year. david: time now for the morning brief. looking ahead at the week, on tuesday the u.k. parliament is set to vote on a series of them amidst to prime minister may's brexit plan. wednesday, negotiations with robert lighthizer to try to avoid further trade sanctions. also wednesday, we get the fed's latest rate decision, was everyone waiting to see if it signals any change in its approach to the balance sheet. friday is jobs day for the united states, coming off of surprisingly strong numbers from last month. turning back to earnings, a quarter of all s&p 500 companies , 123 of them report earnings this week. a general consensus among analysts that earnings growth will be down off of the very strong growth last year. but how much will they shrink, and why?

to help us answer those questions, we welcome liz young, bny mellon investment management director of market strategy. so we have one point this morning, caterpillar. they missed, and were not very bullish on their forwardg outlook. what does that tell you more broadly about china and the world? guest: industrials tend to be a bellwether for economic activity. no one wants to see a bellwether miss. the important thing is they didn't miss on revenue. the income statement starts with revenue. if topline growth is healthy, that means there is not a demand problem. that is good. the issue is once you move down the statement, things like isiffs and the taxes, that what is starting to affect the bottom line. lisa: although that does indicate that pricing pressures are really weighing on balance

sheets. this is sort of what people were worried about, they squeeze you would get from inflation. is that going to be the big pressure for stocks this year? guest: i don't know that i would consider tariffs a natural inflationary cost. we are doing that to ourselves. lisa: fair enough. guest: however, what we are looking at, the healthy part of inflation, if cost pressures are coming in because there's wage inflation and companies have to pay workers more, that would be ok. we've been waiting for wage inflation this whole time. if it is self-inflicted pain because of tariffs, hopefully that is temporary, and maybe we can get to a resolution that increases pressure for both of us to negotiate. david: you mentioned the effective taxes coming off. are we looking for earnings that are going to be difficult year-over-year comparisons because we didn't get the corporate investment and productivity we hope for?

guest: this is the last quarter where that tax boost is still happening, so that will be a pressure going forward. capex is a little more effective by sentiment and really how the economy is moving. companies aren't going to spend if they don't feel like the economy is moving in a strong direction. lisa: again and again, china is proving to be the weak spot. we see that was caterpillar and apple. what other companies could there be out there who are seeing an unexpectedly big decline in business from china that are set to report this week. there's companies across the board that could suffer from this trade issue, keeping in mind that china is the second-largest economy in the world. this is going to have tentacles all over the place. tech has taken a little bit of a beating because of that. that was the original goal with china. we don't see tech leading the market. there's been a lot of conversation about if the market goes up this year, what is faang stocks don't participate in

that? can we still get there? i think we can, and i don't think a lot of people are calling for double-digit rallies in the s&p this year. most people are calling for low single digits. right now we still like financials. i know that is the kind of age-old story. at some point we are all going to be right. but we still like financials for a couple of reasons. i want to be clear, this is u.s. financials, not european financials. but they are healthier now than they were precrisis. if you see the yield curve steepen throughout this year, which we do see a little bit. financials lend on the long end and borrow on the short end, so they will make money on that margin. lisa: what is the most overvalued asset class right now, or overvalued sector within u.s. stocks? david: can i not -- guest: can i

not answer that for stocks and say i still think it is high-yield bonds to some degree. there is some selloff to be had. it has been such a crowded trade because we had so much easy money. this is why everybody is watching the fed comments today and the rest of this week. lisa: can i pushback? we haven't got so much issuance. december was the first year we've gotten zero issuance. the supply and demand dynamic is positive. people are getting coupon payments. they want to reinvest them. wise into that going to support the market in and of itself? guest: because they haven't seen the correction yet. they will stay in it. that haven't been a lot of good alternatives to high-yield. preservationeeds and growth. what investors have been thirsty for is the income component. where else will they get that

besides high-yield bonds. at some point, as the easy money comes of the table, they will have to come back out of that trade. david: we shouldn't leave earnings without talking about margins and how much we expect to see our cost rising. guest: you are going to see margin pressure. it depends on what sector you're looking at. i would like to see some wage pressure. lisa: wage pressure right here. [laughter] guest: right. and it would make sense that there would be wage pressure. if we have some and inflation went up, you would see things like the phillips curve make more sense again. makents from the fed would more sense to the market. data dependency, if that's what puts pressure on margins, would be reasonably healthy as long as it doesn't spike. lisa: which report do you think will define the q1 period? guest: i don't think that there is one particular company.

caterpillar was a big one. tech earnings in general, and financial earnings. lisa: you are going to be sticking with us. thank you so much, liz young of bny mellon investment management. coming up, u.s. and chinese negotiators set to meet wednesday. this is bloomberg.

viviana: this is "bloomberg daybreak." there's a deal today that will combine key producers for the summit conductor industry for $3.8 billion in an all stock deal. the comedy would have annual revenues of roughly three built -- the company would have annual revenues of roughly $3 billion.

more problems for nissan in the wake of the arrest of former chairman carlos ghosn. bloomberg has learned the securities commission is investigating whether the automaker accurately disclosed its executive pay in the u.s. regulators also want to know if they maintained adequate control to prevent improper payments. the company says it is cooperating. deutsche bank has received a commitment for more investment from qatar. the money is likely to come from the country's sovereign wealth fund. two other investment vehicles from qatar already own stake in deutsche. that is your bloomberg business flash. lisa: thank you so much. the partial government shutdown may be over for now, but the white house won't rule out closing things down again if the president doesn't get funding for his order while. chief of staff -- his border wall. chief of staff mick mulvaney

said this yesterday. >> when a president vetoes a bill on a spending package, sometimes that has the effect of shutting the government down. we don't go into this trying to shut the government down. young ofh us is liz bny mellon investment management. there seems to be a disconnect between some of the bigger threats of the economic impact of a government shutdown and the market response, which was a pretty big rally in the broad u.s. equity indices. guest: during the shutdown? lisa: 10% gain in the s&p 500. guest: i think it was unrelated. i don't know that there was a rally because we were shut down. generally there is a belief that markets like gridlock. i think they probably do because there's not an extreme decision one way or another, but everybody has limits. we got to the longest shut down in history. it was starting to affect main street. it was starting to affect americans who couldn't go back to work, couldn't get a paycheck. that is not a good look. at some point i think the market

would have gotten real tight of that. real -- real tired of that. when we talked about the possibility of them not shutting down anymore, it was still not a definitive resolution. we are continuing to kick the can and still hearing threats we could shut down again. thed: sort out for us underlying economy from what is going on in washington. whether it is trade negotiations or the shutdown, where is the underlying economy, and how much is it being affected? guest: the underlying economy still is pretty healthy in the u.s.. i don't think any of that has bled through yet. it could later on, but right now the economy is ok, and the consumer is still ok. what is interesting about some of the shutdown, and even brexit and some of the other things in venezuela, u.s. markets seem to can legally be ignoring a lot of them. q4 was so painful for everybody. in q4 we were pricing in a fed led recession, a completely

disastrous brexit, no trade deal , may be a recession at some point later this year, earnings recession or economic recession. then we came into 2019 and the markets said never mind. not worried about that anymore. david: consumer confidence shows the lowest level since mid-2016. maybe the government shutdown affects that. are we concerned about the confidence of the consumer? guest: this is a perfect example of everybody has limits. at some point the consumer says we can't figure this out. once the shutdown ended, that probably spiked back up a little bit, but i do think that was related. david: i want to talk about -- lisa: i want to talk about the u.s. economy in light of what is going on around the world. the u.s. was the bright spot. china was the main detractor. how long can the u.s. remained this begin of growth and strength when we do see a global

slowdown, particularly in europe and china? guest: it is funny to talk about the usb and be bright spots when we are expecting 2% to 2.5% growth this year. it is still growth. growth has slowed. it has not stopped. we talk about this all the time, that it is the second derivative issue. it is just the pace of growth which has slowed. we expect 6%, maybe slightly below come out of china this year. china continues to have other problems, though. i think everyone needs to keep in mind that trade is not china's only headwind. they had a central bank that needs to keep stimulating, and they are running out of tools to stimulate. david: let's put up a short showing -- a chart showing chinese comedy profits. are we more worried about china or europe right now in terms of global growth? guest: that's a very good question. the worries about china are growth related. the worries about europe are

currency and contagion related. the biggest worry in europe isn't brexit. and all ofis italy, the debt on italy's balance sheets, and the government debt on bank balance sheets interrupt. u.s. financials are healthy, but european financials are not necessarily healthy. lisa: i love how contrarian liz is. italy just sold a ton of debt and their bonds have been rallying, and everyone is saying let's go back in. david: and they are about to go to war with france. [laughter] looked at a survey of business leaders, and i was really struck by, first of all, the pessimism that the tax cuts, that juices gone, and still really struggling to find trained employees. when do you think we are going to see the next recession, and are we sowing the seeds of it now? guest: i don't know that we are

seeing pessimism. i think that would be a strong word for what we are seeing out of businesses. i think we are seeing caution and being careful not to overspend. i think they are being careful. i don't know that they are pessimistic. we still do not see a recession in 2019. we do a central scenario and then other scenarios. a six to percent possibility, and there is no recession. 30% possibility is that there is a shock, and the market sells off like we saw in q4 despite a healthy economy, and the market becomes a self fulfilling prophecy and causes some of a recession. i don't think that is going to happen in 2019. david: liz young will be staying with us. bigng up, caterpillar's earnings missed by almost 15%, the most since q4 2009.

more on that next in today's bottom line. live from new york, this is bloomberg.

david: time now for the bottom line, where we look at three companies worth watching morning. first, the brazilian mining company that had a terrible disaster as a dam broke. this is the second time in three years. they found 35 bodies already. it is a real catastrophe. the stock a little while ago was down 40%. lisa: this is the second time they seen a dam burst. it bodes poorly for them. they are the largest iron ore producer in the world, so you are seeing a big pop in the price of iron ore as people expect this to be disruptive to production. in europe, we are seeing the retail armageddon. [laughter] lisa: i don't want to call it that, but you are seeing a lot of cuts. thousands being laid off. tesco eliminating 15,000

workers. company cutting 2600 jobs. all of these retailers really focusing on trying to trim costs in the light of online selling. david: u.k. was more advanced than the continent appears. the third today is caterpillar. we are joined by bloomberg's opinion columnist and liz young of bny mellon. not so pretty. reporter: you can definitely say that, but there are a couple of things i want to point out. caterpillar called out currency swings playing into that lower than guidance. the other thing -- lower-than-expected 20 netting guidance. -- 2019 guidance. they are seeing an increase in their allowance rate. you look for broader economic

applications. lisa: this is huge because what it suggests to me is that corporate america or the corporate world, this raises the question, where are these credit losses? companies are not doing perhaps as well as people thought, and this is more global on a scale and not just caterpillar specific. reporter: no, and they did call out china specifically is one area where they are really starting to see sort of a slowdown in growth, only looking for a modest sales increase in 2019 after a pretty gangbusters 2018. i think that is a reminder of how quickly these things turn. it is not necessarily a gradual turn. lisa: did they highlight where credit losses were increasing? reporter: they did not come up it i expect that will be a topic of conversation later today. david: they had that big currency fluctuation. guest: i think this is sort of an underappreciated impact, especially for industrial

companies. we are seeing time and time again from the industrial companies that reported this m is one i will be watching tomorrow -- people were so focused on tariffs and rising import costs, but currency is really affecting a lot of this. david: is it just too expensive at this point to hedge? guest: i wonder if it is too much volatility, or if they are just not really able to put it where some of these markets are going to go. of bny mellong still with us. i am trying to understand the currency fluctuations and slowdown in china. how much is that going to affect industrials where you don't have as many bridges to nowhere being built? guest: i would agree currency is underappreciated in all of these markets. what we expect much to china separately, this year the currencyank might let

hit seven at some point, which is a psychological barrier. if it hits that, you will see effects that kind of reverberate around emerging markets in general. they might be short-lived, but that would affect industrials quite a bit. david: do they follow caterpillar, or is caterpillar a one-off? reporter: what we've seen so far is a really mixed bag. united technologies had great numbers, really strong forecast. others like granger and black & decker have come in below where people were expecting. i think that's what you would expect to see at this point in the cycle. some of these cyclical names are these to turn smaller cycle areas. lisa: what happened to the whole idea we are moving from on a terry stimulus fiscal stimulus -- monetary stimulus to fiscal

stimulus? guest: that kind of came off the table. [laughter] david: we can't keep the government going. lisa: some people are saying the democrats and republicans will work together and will have some sort of infrastructure spending. do using that is completely off the table? guest: i don't think it is completely off the table, but we are now in another election cycle. we have prospective nominees coming out. neither side of the aisle is going to want to do something drastic until we finish with that. we also have plenty of other things to clean up in the government before we start to spend on infrastructure. reporter: how many infrastructure weeks have we had now, 10 or 12 without anything? [laughter] david: are there other parts of the world that could step into the fray? for example, india. when it comes to industrials, are their markets there that could shift over? reporter: i think india is not

falling off quite as dramatically as china for some of these companies. but as you look at other regions , a lot of manufacturers have called up europe as being an area where they are seeing slowdown concerns about a drop off in growth. thisorry at what point starts to spread to the u.s., especially given the impact of the government shutdown and these growth fears shape up. lisa: thank you so much. liz young sticking with us. coming up, $1 trillion in new debt. that is how much the u.s. treasury would need to finance a widening deficit. 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. lisa: this is bloomberg daybreak. the pessimism is deepening before the u.s. open after caterpillar reported worsen expected results. as in p futures down.

snapping two days of ghosn. -- of gains. emerging-market currencies at the highest levels since last july. two year yields unchanged. iron ore off. it had been higher. they are lower. gold is not providing a haven. anothere, another year, $1 trillion in new debt for the u.s. treasury. the department is set to maintain elevated sales to finance the government widening budget deficit. they have issuance at unprecedented highs. bny mellonf investment management is still with us. luke, i think it is interesting to note that the net new issuance of debt are the u.s. was twice as much as the prior year.

at what point will this matter to markets? we have not seen this increase yields as far as i can tell. chart ofyou look at a market expected participants overlay that with the 10 year, it is the first year where you see the 10 year overshoot it. we have a trillion different ways to measure the premium. we did have a supply related premium. lisa: it was being priced in. luke: but then you can talk about this year the big argument will be is this new flow what matters or are we having digestion issues with new issuance at these levels? i love the fact that there is something fun about the deficit. in the past, there is always something that steps into the vacuum. it was petro dollars back in the day.

china for a long time was increasing their investment. what is going to step into this. where's the money going to come from? liz: i do not know where will come from, but what everybody is watching is not whether the fed will raise rates but whether we will end the balance sheet run-up sooner. at some point everybody kept saying something has to give. does it? i'm not sure anymore. the balance sheet is baked and we will keep it big. it sounds like we might keep it bigger than we expected in the beginning. the chartavid: illustrated exactly that. lisa: the wall street journal had a story where they're discussing whether fed officials are discussing to communicate how they will stop the run off. if they do signal that, how much would that support the market? with that offset the increase in sales from the treasury? luke: in the term that is coming

off, i do not think there'll be an offset in that kind of terms. if you think of the signaling value is a double-edged sword. until recently we were pricing in rate cuts from the fed. right now we not pricing in volatility in till may in july of next year. if you start to reverse course what you think about the balance sheet, that would signal you think you're moving into a cutting cycle. with the rebounding markets and u.s. data being resilient, i think the odds of tweaking the balance sheet talk and having it be interpreted by markets as we are doing this because the world is coming to an end have gone down. you probably need more data before they are willing to make that shift. signal they they will consider stopping the roll up sooner, the market will rally. thinking that the fed would -- some said they have

corrected their language. there was still the pressure from moving to qe to qt and this autopilot idea they would continue to roll securities off the balance sheet. if we compare this to mario draghi when he said we would do whatever it takes, this would be a signal we will continue to do what we need to to support markets. david: how much of the reaction is because markets think they won? how sent a strong message, could they possibly back off capitulating?out is: in these cases, this where i start to feel bad for jerome powell because every single word he says people hang on it. he knew what he was signing up for. lisa: where we started the

segment, you said they're trying to be careful about how they communicate that and it is a huge piece of information. to seewould be surprised them say something definitive and drastic this week. they might communicate they will consider it. lisa: when you say the markets would rally, is that bonds and stocks are just stocks? liz: i think it is both. stocks more so. it is a sentiment those will continue to support. investment grade corporate's would probably rally, you might see in increase in high yields. david: maybe we will know on wednesday. liz young of bny young investment management -- bny mellon investment management. now we turn to viviana hurtado who is here with first word news. u.s. and the telegram are close to an agreement to end the 18 year war in afghanistan. andkey issue is to --

direct talks with the afghan government. the u.s. also once a pledge from the taliban to keep the country from being used by terrorist groups such as the islamic state. the pentagon warns cybersecurity is unable to stay ahead of potential attackers. bloomberg has obtained an assessment of cyber threats. the pentagon says cyber assessment is handicapped by a lack of tools. recruiting and retaining qualified people are big issues. president trump says he does not believe congressional negotiators will reach an agreement on border security by the february 15 deadline. the president told the wall street journal there is less than a 50-50 chance of the deal but he is vowing to build a border wall anyway, even if he has to use emergency powers. global news 24 hours a day, on air and @tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. i am viviana hurtado. this is bloomberg. lisa: thank you so much.

plans to commit to zero missions as a company by 2050 using new technology. the chief executive spoke with bloomberg's alix steel. >> our technology allows emissions to come down. firstly is from a business perspective. methane at our technology, it is all around emissions. at the customer discussion, our customers want us to move in this direction. we think it is right that we do so. we all have a responsibility that we played together. a business case and our customers we are headed in that direction. baker hughes ge as a company are going to do this, the other is the equipment he will give to your customers will be more energy efficient. that is very true and you can

look at it from a complete picture perspective. we are already reducing the admissions that bhc produces. today,12 to where we are we've reduced by 26%. by 2030 we will reduce by 50% of the carbon emissions. bywe go forward, net zero 2050. with the technology that is coming, we think the technology is doable and it is in line with what our customers are talking about. we will also help our customers as they look at the total carbon footprint with the capabilities we are introducing. also with our inspection products, the measurements and sensors division, and there is a lot of capability we provide. alix: is it going to cost you more to do that? >> no. it comes from a business case perspective. we have been enhancing our technology and you're also able

to make equipment that is more carbon efficient. it has to stand on its own from a business case perspective. the first primary course. it is good for our shareholders. david: that was part of alix steel's interview with the baker hughes ceo. we will have more interviewed throughout the week. what struck me is he said this is what the customers want. you can have all the government regulation you want, but until the companies say this is what we want it will not get done. lisa: i have to wonder how much was being driven overseas and how much in the u.s.. david: very good question. coming up, overhauling ge. we will take a look at the job ahead from the ceo. our father lead -- our follow the lead inside ge series is next. this is bloomberg. ♪

viviana: coming up on balance of power, jim messina, messina group ceo and former obama campaign manager. this is bloomberg daybreak. shares of caterpillar falling in plea market training. -- in premarket trading. shares and earnings missed estimates. lower demand in china. caterpillar also forecast profit lower-than-expected. the world's largest iron ore miner suspending payment after a dam disaster in brazil kills at least 64 people. it is the second disaster in

three years. -- are offering last-minute concessions to save their rail merger. bloomberg has learned they are falling short of the revenues by eu antitrust legislators -- regulators. that is your bloomberg business flash. david: thank you so much. it is time for follow the lead. a deep dive into the stories making headlines with key and insiders. all this week we take a look inside general electric. our focus is on what has happened to the company and what the new ceo needs to do to fix it. the talent is real, technology is special. ge needs to change. >> ge is ready to change. needs to show up

and start talking about what the tangible plan is to turn this around. >> cult is no stranger to turn around. is no stranger to turn around. >> ge needs to change. we always came prepared to convince the teams they and we needed to drive change. that is not the case here. rge team needs no convincing. announced winding down its stake in baker hughes and selling service mac. called brought in larry -- larry culp who did a hell of a job. he has managed to conglomerate but not on the scale for general electric. >> this week investors wait for more details. david: we welcome brooke sutherland, bloomberg opinion

columnist and deane dray, rbc capital markets analyst. welcome to both of you. brooke, let me start with you. before we figure out what mr. culp has to do, let's figure out what went wrong. this was such a vaunted company. brooke: it was. you're seeing is decelerated cash flow and a lot of liability. some of these were not known until recently, on which ge noted ge had a $50 million reserve shortfall. when you have a dynamic, that is not tenable and that's why you're seeing ge raise cash anyway you can. lisa: you expect the shares to get a $10. that is from $9.16. not that much more. the shares of already rallied 21%. where is larry called -- larry

culp going to go? deane: i do not think we have seen all the cards he will be putting on the table. we will see ugly q4 earnings. the real story comes at the analyst meeting that they will set in early 2019. they will talk about deleveraging and winding down or going to the core on the power business. those will be the important steps. david: how do we know we can trust the numbers? it seems like they've been misled by their own accounting. that is a good question and what people will be looking for is a reset of their earnings metric. stop trying to be so cute with the numbers for lack of a better way to say it and be transparent about everything going on with the company.

it is also about getting all the bad news out the door, and putting investors at ease that there will not be another long-term insurance a or anything else out of ge capital that could stun the market. in a december article on bloomberg news you said the biggest business under fire is there power business. can you elaborate? deane: this was the largest industrial business at ge and it has been under fire for the past couple of years. the big disconnect was ge was continuing to say there is growth opportunities in business where every competitor was saying there were secular problems and they were winding down and cutting capacity and ge was late to the party in a knowledge and that. now they need to resize that business. lisa: what does the rebuilt ge power look like? and they ever get back to the profitability levels they had before?

it is an entire structural reset. one of the first things larry restructured the power business into two entities. we think of it as the good bank and the bad bank. the good bank they will keep everything related to gas turbine equipment. , theyhing else, the bad are likely to wind down, exit. david: they have to manage their balance sheet. when you are a director you have to sell stop and hold stuff. the things people want to buyer the most valuable player. how do you avoid being less of and people don't want enough cash to take care of your debt problem? deane: that is exactly the anxiety investors have. like thesalable assets health-care care industry, there is big demand for those. they do not want to be selling those at the expense of holding

on to a poor portfolio. you are seeing toggling. we got news last week with the wabtech ge transportation business. they will retain more. we think we will see that with the health care business. one thing i was struck by was general electric was a massive conglomerate with disparate businesses and they are the model of that and they of the model its failure. i wonder how much larry culp has to rethink the identity of this company and what should that identity be? he absolutelyk has to rethink the identity of the company. ge was the ultimate conglomerate. when you saw their company shrinking, ge was doing that but perhaps not as much as they should have been. when you have management teams just looking at one business, they do not fly under the radar as much. beyou look at what ge should

going forward, part of that is a cash flow question. is onelth care business of ge's best cash generating assets. if you play this down the road and they are talking about separating that out, that does raise questions when you have an aerospace or a power business, those are capital intensive. i do not know how that keeps ge competitive if you do lose that source of cash flow. david: general electric for years was the company everybody turn to and said that is the culture we want. how did it go from the top to this challenge that quickly and what can the new ceo due to turn around? what kind of culture will he bring? deane: the speed at which this has unraveled has been unsettling. to start the process of fixing it, you bring in new leadership. that was one of the reasons we make the call, which was

difficult to do, when you have an existing ceo, we think there is going to be a leadership change. we thought larry culp would be brought in. on brooks comment on winding down conglomerates. we have seeing this across the sector. -- we'vealled the called it the pendulum swings. ge is under fire trying to do this. the expectation is you need to shrink the company to a core and that is just going to be the gas turbine part of power, the aviation business, renewables, and it is questionable how much of the health care business they will keep. we think that will make sense in terms of cash flow. lisa: if larry culp fails, is ge bankrupt? deane: i think that will always be on someone's horizon and that is why they have the spreads. i do not see larry culp failing. he took the job with them -- with an eye toward success.

i do not think it is on the table. brooke: it is a deleveraging situation and a restructuring process. that is not what larry culp did. you fill -- do you feel his skill set transfers over? deane: this question has been raised a number of times. ever had tohas he fix a balance sheet before? is to this magnitude, but he manic career of taking over underperforming businesses and turning them around. he is coming toward this with eyes wide open. it is not a liquidity challenge. there are plenty of assets and the need to time this out. david: they can pay their bills. what about selling for parts. how much is it worth? deane: this is a big debate. we are valuing the company on a sum of the parts basis for now. that is the right way to look at it now because you do not know

what the earnings power of the combined entity is going to be. the biggest unknown for everyone is ge capital. is there another liability coming? -- theh will it take to long-term health during search -- insurance? deane dray of rbc capital markets and brooke sutherland of bloomberg opinions. thank you. lisa: jpmorgan says stock and the credit markets have not factored in the fed tipping away from monetary tightening. this is bloomberg. ♪

lisa: -- stocks in the credit market still not priced in the fence pivot away from price hiking. there is still room for these

hiking if the fed says it will pause its cycle. the idea is spreads have gone higher than where they should have gone given the trend and given how growth is. i have to say, this is the big question i have. --ht now our stock investor right now our stock investors or credit investors being optimistic or pessimistic? this is a point of debate. what we saw with caterpillar are people are still seeing weakness. david: the key phase, if the fed. up, jonathan ferro. this is bloomberg. jonathan: -- this is bloomberg. ♪

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

jonathan: coming up, equity , caterpillar the latest company fueling concerns about china. chinese government officials are writing from beijing paving the way for trade talks from washington. 30 minutes away from the opening bell. this first day of the trading week with futures negative .6%. in the fxe action markets and in the treasury markets. yields are lower by a basis point. that is the market set up ahead of a big week. looking ahead to the next round of negotiations between the u.s. and china. >> all eyes are on the trade talk. >> trade talk. >> whether or not something can come out of the current trade talk. >> short-term there is a higher probability we can see some kind of resolution. >>