degrees shift from unwind autopilot. resting on first quarter results. earnings bonanza. delivers,ion unit buying the upside in earnings. david: welcome to "bloomberg daybreak." it is earnings day. ge came out a bit ago. they missed on earnings per share, $.17 per share versus the estimate of $.22. they did better on revenue. there aviation unit did well. jetblue sang the profitability was off a bit. alix: revenue fell by 25%. the question for ge is how much bad news is in

the stock now. david: it's all about leverage. we were to leveraged. alix: breaking news. too leveraged, ge. i'm checking in on conocophillips. an earnings beat at $1.13 per share. the estimates were for one dollar per share. $3.8 billion, pretty juicy. blowing have cut comps, past estimates in some ways. better comps and oil price that could be good for those with sustained cash flow and buybacks. solid numbers from conocophillips. david: as well as from ups. they had fourth-quarter adjusted eps of $1.94. the estimates were for $1.90. a slight beat their. -- a slight beat there.

basically within the range. just revenue was spot on, under $20 billion for the fourth quarter. alix: it will be the macro, which is the fed, earnings moving the market. s&p futures up by two points. they had a monster rally januaryy, the best rally in three decades. a weaker dollar story. euro-dollar going nowhere, but the dxy sitting right under the 200 day moving average. seeing the biggest rally in the last four months. yesterday was all about buying, buying the short and in particular. 266 the print on the 10 year. how low can we go? the market still has not repriced the fed. crude looking at its best month since april 2015. all of that taking into account

euros on growth. -- intoo zone growth account euro zone growth. david: we are joined by michael --ee and caroline a wilson carolina wilson. an interim report card on where we are with earnings. five companies reporting, there's aasically, better story on earnings than on revenues. out, 17 out of 30 reporting doing well. which takes us right to tech. carolina: it was a whopper day for tech earnings yesterday. facebook surged after reporting revenue that beat estimates which showed us this company is still able to keep its users and companies advertising revenue.

giving a bullish sales forecast and then missing estimates but cloud costs weighing on them there. c, some pullback from microsoft heavy funds like xl k q. the -- xlk and the alix: is this just purely an expectation game? as long as you don't totally suck, zero revenue growth, the stock will go up? michael: you guys are the earnings people. i'm the revenue guy. this tells you where the economy actually is going. revenue is coming in a bit lighter. that is may be a signal longer-term that there will be problems ahead. we had the impact of the corporate tax cuts into the

markets and then fading. year on year comparisons will be a little more difficult. you have companies kitchen sinking it now. analysts marking things down going forward. do we see the economy starting to slow as the fed has suggested it will? is this really looking in the rearview mirror at the final glorious days of summer in the earnings world? alix: sure, but the fed helped the market yesterday. you got someement, further gradual increases in the federal funds rate consistent with the same expansion of economic activity. flip it and you wind up what whatng yes -- wind up with you are hearing yesterday.

was a fed dove market reaction straight up. was it accurate? michael: no. we see a lot of that commentary. obviously, the markets figure into what the fed is doing. it's like the rooster taking credit for the sunrise. the markets will go down before the press conference. they have been going up since a few days after his press conference. to attribute everything to the fed is a little ridiculous, i would say. the fed takes into th account tt the market has been volatile. they are also looking at emerging markets and growth in germany, china. the world is slowing. it all together, they are saying we will be data-dependent. that's what jay powell has been

saying for a while. they are just more forceful in saying it now. they don't have the dot plot. the fed is acknowledging reality but it is broader than just the markets. bracing forche bank the possibility of maybe a forced merger with commerzbank. new the stock has done particularly well -- neither stock has done particularly well. these two banks are struggling. i want to ask you about deutsche bank. what about financials overall? what are we seeing overall in the u.s. versus europe? carolina: we will see a lot of trading surrounding etf's, the monster is xlf, but that is focused on u.s. banks. the etf to watch out for is the eusn.s msci,

that will see some interesting trading activity. david: consolidation in europe for the banks? michael: that has been coming for a long time, that's what a lot of people have wanted to see. bank is a special case. 1870,as been around since longer than germany has been there. this is a big deal for them. they just can't get out of their own way. reserve is looking into deutsche bank and whether it played a role in a big money laundering scandal. they face a lot of legal jeopardy and it keeps piling centralhe german

bank thinking if we can merge them with somebody, it will take them out of the headlines. if they do that, what name do they adopt? do they keep deutsche bank? david: it has to be deutsche bank. alix: the government is facilitating this. what will they do to make it worthwhile for both of these banks? david: probably saying it somebody else's problem. alix: some of the earnings this morning, the beats and the have-nots. investors making a commitment of just under 2.5 times looking to sustain an a rating on their debt. looking at the power sector. dupont is another bellwether. they are heading lower.

2-3%,et sales of just barely keeping up with gdp. global expansion moderately lower than 2018. full year earnings per share forecast missed estimates. they are ending the year with record bookings, but you have to see how investors feel about that on the call. ups rising, it's all about the u.s. domestic growth, domestic revenues of 6.3%. -- up 6.3%. today. a bit higher results,, more company including the tech world. this is bloomberg. ♪

viviana: this is "bloomberg daybreak." corporate america wants to and president trump's trade war. a coalition of 200 trade associations will start a new attack next week on policy they see as damaging. "e campaign will be called hurt the heartland." profit at nintendo beating estimates thanks to strong holiday demand for its super smash brothers and pokemon games. they had to cut their outlook for the switch device.

shares up 60% this year. royal dutch shell came through three months of bile tile oil prices -- volatile oil prices. they will complete a $25 billion share buyback program. they are paying one of the largest cash dividends. 40 percent of companies on the s&p 500 out with earnings. this shows the surprise for sales on the top panel. the bottom panel is earnings. expectations were beaten down so much in december for the quarter. joining us now, larry and mark. adam, where do we still have upside if earnings continue to come in with a slight beat?

mark? technology, things look very good. we had some good reports last night. we thought microsoft was better than the market thought. facebook was a good surprise. so far this reporting season, it's been relatively good. a lot of these expectations have been brought down significantly. alix: when it comes to in --rials, shall coming it was theg in, perfect quarter. upside for sales and revenue as well. what works? mark: with respect to industrials, we really like boeing. they reported a great quarter yesterday. cash flow was great, their

commitment to shareholders has been terrific. a company that delivered 806 planes, they will do 905 next year, that is a terrific move. the other thing we personally like is transportation. we like unp and several of the airlines as well. time to behis the getting into the stock market or putting your money somewhere else? >> the fed told us everything we needed to be told. think the slowing of international growth will make things challenging. there will be halves and have -- haves and have-nots here. technology trends go against the fixed income investments we make as we see transportation companies do well like fedex and ups.

it means the shift away from bricks and mortar becomes more challenging. we feel risks developing and leverage isn't going down overall in the economy. alix: what does that wind up meeting for allocation? the thought was you want to move out of equities and go somewhere else. may fixed income you want to be shorting. how does the conversation change now? ird: prince said the music is still playing and i have to keep dancing. this feels like 2007 to us. there's still a lot of agent principal problems out there in the economy. companies with three or four times leverage at investment grade, there is to keep things going.

people are making a lot of money and we will continue to try to dance. opportunities are coming our way. you guys will be sticking with us. tune into commodities edge. my interview with lorenzo simonelli. their numbers looking fairly strong. easy comps, strong numbers coming out of baker hughes. advertisers sticking with facebook. they crushed wall street estimates despite a series of privacy scandals. more on that, next. this is bloomberg. ♪

taylor: this is "bloomberg daybreak." facebook shares up 12% this morning. like advertisers are sticking with the company because 20% of the worlds population is on this site.

barclays saying looking for --sumers only have facebook microsoft shares heading a bit lower. there's concerns about cloud growth. growth that isud slowing is a bit concerning. analysts at wedbush securities say the hyper growth for microsoft may be over. now looking at in-line expectations. i want to end with qualcomm. a big focus on the chipmakers as well. the move to 5g giving them a boost, a bit of a relief rally after intel and nvidia were a bit concerning.

qualcomm giving the stock a boost. the ceo said they are not immune to some of the slowdown they are seeing from their peers. they are looking to 5g to give them a boost. david: facebook's earnings report yesterday sent the stock up over 10%. mark stoeckle is still with us. amazon and alphabet among adams fund's top holdings. more,hart shows is a bit which is daily active users and monthly average users. march is straight up. it looks almost managed. givenextraordinary to me the difficulties they've had with privacy. mark: as we talked earlier, it is difficult to take facebook away from the users. it is surprising that it is that

stinky. the advertisers love us -- that sticky. the advertisers love it. it's been difficult this quarter to figure out what to do with facebook. they reset everything last june. it was a big reset. 2019 will decelerate and costs are going up. not the kind of set up you would like to have for a stock you want to get behind, but they surprised last quarter and they will surprise this quarter. right now, things look very good. it also appeared that they found a really good call. they have their arms around more of the issues. job duringd a good the interviews yesterday. the adult in the room is rearing its head at facebook.

me,d: one thing that struck addressing the privacy might affect the advertising experience. i don't see it yet. laird: you don't see it. we reduced our facebook in 2018, which was a mistake, but we did that because i was afraid of and thed costs government coming in on privacy and security. we are not seeing it at all. i can't imagine we won't see it at some point. alix: let's go to microsoft here. the pc unit slowing. the growth rate for the cloud could be slowing, even though revenues for azure were up. you want to buy the debt or have the old school tech names run the course here? mark: i find it hard to believe

that people are really disappointed with microsoft plus quarter -- microsoft's quarter. azure was really good. seeing, itt you are has been a really good stock for two years, two straight years. some people are taking some profiteer -- it is a good compounder of earnings. we don't see a reason to be out of the stock right now at all. are you buying that, buying the upside in earnings right now? mark: with facebook, we need to readjust. our analysts will get together and figure out have things changed like we thought they were going to? they haven't. what do we think going forward?

they had two big beats after a huge reset in june. keeping aing to be a low bar and smashing in every time or how is management really going to do things? it's incredible what the engagement is with facebook. we need to go back and reevaluate our underweight position. thankmark stoeckle, you so much. the fed's dovish pivot. flexibility on the balance sheet and patience. this is bloomberg. ♪

alix: this is "bloomberg daybreak." a monster rally yesterday for the s&p. now, a bit of softness coming into the market. dow jones futures down 30. the haves and have-nots of

earnings. european stocks flat. italian equities off .5%. weaker dollar story. the dollar index sitting at the 200 moving date -- 200 day moving average. modest growth in europe. able-10 spread is steepener here -- a bull steepener here. earnings providing that direction for the markets. david: they beat on operating revenue, $8.6 billion as opposed to $8.4 billion. i don't see earnings per share yet. the big story for all of these guys, what's in the 5g.

how's it going to work? that is their big as they are pursuing that merger with -- their big bet as pursuing that merger with t-mobile. a second day of negotiations is set for today. president trump expected to meet with the chinese vice premier. a breakthrough deal is unlikely. both sides have made progress on core issues like intellectual property transfers. a fire ripped through a paper plant -- no one was hurt. check out these claims. over 100 firefighters battling the blaze and subfreezing temperatures -- in subfreezing

temperatures. the factory has been a new jersey landmark for decades. global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. alix: unbelievable. that fire was incredible. c at the newark airport , some cars caught fire. that's an unbelievable picture. david: a dozen or so cars on fire. because of the cold, it is more dramatic. about thosethink poor firefighters out in this brutal cold, spraying water on things. alix: so far, no injuries have been reported. fed's dovishs, the pivot, changing their view from

december. some further gradual increases in the target rate will be consistent with sustained expansion of economic activity. yesterday, the committee said in light of financial developments, the committee will be patient. ofll with us, laird landmann tcw fixed income group. dovish aske that as the market took it? laird: the fed showed themselves to have the psychology of the average investor. the markets are incredibly hyperbolic right now. therer, everybody thought would be three tightening's in 2019. -- tightenings in 2019. growth is slowing globally. it will put pressure on the u.s. eventually. t to tighten wan

two more times before this is over. you want to be in the intermediate sector of the curve getting ready for the steepening that's already begun. corporate credit is still way over leveraged. the rating agencies and wall street have pushed a lot of leverage into investment grade companies. we will see a big wave of downgrades. david: is that the risk we are running with the fed responding in the marketplace? thatu ease conditions, encourages corporate credit as a practical matter. the white line shows the tightening -- they tighten substantially back in december. now, they have come up quite a bit. is that it? laird: it is hard to stay with this fed, they don't seem to have much conviction.

it seems like -- hear that corporate leverage is an absolute number. it's actually not that high. what should we be looking at? laird: leverage versus earnings. earnings will allow you to pay your debt down. i'm still waiting for the free cash flow numbers from ge. we expected that they would be much lower than they originally predicted, but still adequate to service the debt. we think ge is a great opportunity on the debt side. this a sell dollar, by duration -- buy duration and em? here: may be by em stocks

-- maybe you buy em stocks here. investment grade would be the second biggest growth of debt out there. the dollar is an interesting issue versus em, the dollar struggles. how could it struggle long-term versus the euro? alix: we are not in a recession. stop: they will go full quantitative easing all the way. the fed doesn't really understand the true relationship between quantitative tightening, having a big balance sheet and how to set interest rates. it's different from this is so easy, we can do this mechanisti cally. they should keep that in mind. if they grow the balance sheet, they will lose more control. david: laird landmann of tcw

fixed income group, thank you for being with us today. deutsche bank's shotgun marriage. that's coming up next. he's an original member of the allman brothers. onspeak with chuck lavelle conservation in the business of music. this is bloomberg. ♪

viviana: this is "bloomberg daybreak." the ups ceo.

david: we turn now to wall street beat. mic.'s cfo drops the elon musk had his earnings call yesterday. it was fairly ho-hum until the very end. he's going to be retiring. >> again. >> from tesla. he will be with tesla for a few more months. will continue to serve as a senior advisor to tesla. david: the stock reacted. alix: who's taking over? way, we have a new cfo. alix: he's young, a millennial.

shotgun bank's marriage, bracing for a government brokered merger with commerzbank. first quarter will come out -- if it disappoints, the feeling is you will have the government set you guys get together and work this out. david: they will have a rough time of it. out, the worsted three performing european banks, commerzbank, don scott and a andche bank -- dansk deutsche bank. one has huge regulatory overhang issues. david: united natural foods retained goldman last year to for $2.9upervalu billion, handling the deal itself and the financing of the deal. unfi claims goldman did not

fulfill its responsibilities, and the fees and ultimately charged and the way it helped other clients securing the loan. fees it ultimately charged and the way it helped other clients securing the loan. the fees went up a lot more than we thought. you had some hedge fund guys come in who had different interests. take us through what's driving this lawsuit. >> this litigation is about trust. goldman sachs built its franchise on the notion that the client could trust them with their most important transactions. it was the most important transaction in unfi's company history. goldman sachs violated its trust repeatedly.

goldman has come out with a statement. believesgoldman sachs these claims are entirely without merit. we intend to vigorously defend ourselves against these accusations. talk about the fees. contract,in the wasn't it baked in that things could go wrong? didn't they know what they were getting into? >> unfi believed goldman would act in good faith. they paid goldman handsomely. ultimately, goldman violated that trust in three ways. $40.5 million that goldman sachs was required to provide you an fi -- unfi. david: stealing is a strong

accusation. wasn't contrary to its contractual obligations? >> it is a violation of the contract, yes. they improperly withheld them at the 11th hour. their argument is based on the notion that they didn't have enough time to syndicate the loan. that was based on the data closing. david: was it harder to syndicate the loan than anticipated? >> that's what they said to unfi. we have serious doubts that they used their best case in order to syndicate this loan. short, itll slightly enabled them to claim these fees. david: there's been issues before with other dealings.

fundsndicated some hedge who had an incentive because if we didn't extinguish the debt from an acquired company, they would still have some value. >> that's right. the target company's debt was going to be extinguished. one day, goldman comes to unfi and says let's change the terms of the loan so that supervalu becomes a co-borrower on the loan. only after isd that that was really done in order to assist certain hedge fund clients who would have otherwise lost their position. nfi?d: how does that hurt u >> purchases of supervalu cds would benefit -- david: is there any damage now?

is there any provable damage now? >> on the cds, we will see what emerges, what plans they have. we've seen a lot of activism from cds holders in these situations. unfi has limits to what they can do. david: why didn't you file in state court? thislly, you would expect -- >> they allow these cases to go through discovery so you can understand, they allow litigants to understand what the other side has done. that struck us as an appropriate pace. david: normally, goldman would not like their clients to go away unhappy. >> that was our impression. these were issues raised by unfi

before the acquisition closed. unfi has sought to resolve this dispute. unfi had to do it over again, with a separate the merger from the financing -- would they separate the merger from the financing? >> they would build and more mechanisms realizing the trust in moreeir -- build mechanisms realizing the trust isn't there. alix: it's interesting because we talked about it last term -- goldman has come on the others beingcredit default swaps thrown into the spotlight, it is definitely in the spotlight for companies and lawyers. david: as an insurance policy,

you don't have any control over whether the insurance is triggered or not. different.ttle there are things that can be done to trigger it or not. alix: we will give you money if you wind up not triggering your cds. that is a significant issue. blackstone saw a 40% fall in profits. you had the market hurting its holdings. the fallout from that horrible december we saw. marking tohat just market, is that book or cash? alix: good question. david: that's happened to a lot of companies. alix: i don't know what that is. aum rose. maybe it is a market to market? david: i don't know whether it's

cash or book. alix: let's get an update on other earnings. taylor: i will start with industrials. ge, investors like what they see , they are committed to achieving that ratio of 2.5 times. the balance sheet starting with that, 20% of the revenue, 25% drop is a little concerning. they have $60 billion on their balance sheet. negative free cash flow the last three quarters is something analysts want to see turnaround. -- barelyof 2-3% keeping in line with gdp. past, top line revenue has been growing up to 12%. materials the only standout.

you are seeing a drop in the act agd specialty products -- and specialty products. record saleseeing from the strong holiday season translating into profit. it's always about u.s. versus global growth. they are seeing a slowdown in terms of their international business along with their rival, fedex, but still posting higher sales abroad, making up 25% of their business. domestic sales make up 60% of their business. net revenue was up 6.3%. a good win on the domestic front for ups. free cash flow topping $6 billion. that was a record going back on the balance sheet. david: we will do something a little different now. a little rolling stones and mick jagger. ♪

♪ david: that is the rolling stones and mick jagger doing honky-tonk women. is the manght there whose plate -- who has played he'sard with the stones -- also a noted conservationist and and founder of the mother nature network. .alk about that how has it changed? how has the business of music changed? chuck: it has changed tremendously. in the day that i was coming out the 1960's and

1970's and 1980's, you had lps and cds and cassettes. streaming,ll about digital downloads and streaming. revenue streams have dried up. david: in the olden days, you had to get a label and the label control you. the stones took back some of that ownership of the music. point, do you almost wish the labels were back? chuck: what you are seeing is a marrying of those two concepts. the artists own their own on theing to most degree label will do distribution to get a piece of it. it's hard to do everything. write music, record music and play music and be your own manager and your own record label. david: you are about to go on

another u.s. tour. how do you make your money? is it off the concerts themselves? there was a day you toward in order to sell records. -- toured in order to sell records. for theow, you tour revenue. merchandise is a big deal for top artists. david: you have southern roots. talk to us about conservation. you are a leader in that area. chuck: my wife and i are tree farmers. we have a few acres in georgia. family has been connected to the land for generations. we began to be stewards of the land carrying this forward. as part of that, we came up with the mother nature network. we realized there was a void for an iconic environmental website.

nn put it together, m celebrating its 10th anniversary. david: it is a lifestyle, particularly ecological oriented. chuck: not only environmentalism but social responsibility and those kinds of issues come into play. david: what's the biggest surprise we will see in the stones tour? chuck: we will get to that in rehearsal. yet, disclose anything but we will have fun. the fans are still coming. chuck: a great institution -- david: a great institution. chuck leavell of the stones and the allman brothers band. alix: breaking news from conocophillips. the company has ended its -- a company in

the u.k. they had been in talks since the middle of november. since then, the price has been volatile, complicating the negotiations. they are looking to engage other potential buyers for assets. north sea was going to be left for dead. it is coming back. that stock up 2% in the premarket, particularly when it comes to earnings. they see production growth of 7% in the fourth quarter. trade talks continue for a second day. president trump tweeting this -- "no final deal will be made meet toesident xi and i discuss the more complicated points." will they come to something substantive or will this be all about buying soybeans?

will it just be handshakes and the promise of talking? will that be enough for the market? coming up, much more earnings and the fed. portfolio manager will be joining us. we have a lot of earnings coming out. ge up 9%. the power business did not deliver but it's aviation business did. ups on the upside, conoco on the upside, baker hughes on the upside as well. comps were easy. industrials coming in quite strong. 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. alix: powell's patient you turn.

they could change balance sheet 0ormalization factors, a 18 degrees shift from unwind autopilot. deutsche bank's merger with bonanza.nk -- earnings ge avoids 2019 guidance. the call starts right now. david: welcome to "bloomberg daybreak." a big earnings day. stock up 9%. dupont is down almost 8%. alix: it is the haves and have-nots. dupont falling after its 2019 profit warning. did not give a good outlook there. willlobal expansion

continue at a moderately lower pace in 2019. question is if the how much bad news was baked in. isthings didn't get worse, that enough for the stock to rally? david: they didn't have to increase their reserves. remember the reserves they were having? .aybe they are relieved alix: totally. they are not giving guidance for 2019. is it actual uncertainty? the call front and center will be how much you sell. david: mastercard just out with their earnings now. they have beat -- they matched on revenue but beat on earnings-per-share, $1.55 as opposed to $1.52.

net revenue was $3.8 billion. the stock is trading down 1% in the premarket. alix: volume up 15%. that as well. are digesting you the fed being more dovish today. it's hard to get a good overall top down read on earnings yet. you wind up having amazon after the bell. three afterup looking at the best january in years for the s&p market. euro-dollar goes nowhere. dovish fed, so dollar falls. yet, you have a recession and .taly, so yields go nowhere after a bull steepener yesterday.

crude a tiny bit softer. the best month for oil since april of 2015. i want to dig deeper into earnings out this morning. taylor: we are waiting for the call on ge. of negative news being priced into the ge stock. something we will be listening on the call to see if we can get that. a lot of this has been about deleveraging and cash flow. they need to boost their liquidity. you want to see them turn the power sector around. they still have $60 billion in cash on their balance sheet. you have negative free cash flow in the last three quarters. it looks like it will be positive and growing in the next few quarters. keeping that momentum is something analysts want to see going forward. we talk about the defense sector with boeing and raytheon.

a quick recap of raytheon. shares heading lower. the full year earnings per share missed forecast. 12.7%, but the 2019 sales forecast is missing estimates. boeing getting a bit of a boost from the defense sector. that might not be helping raytheon just yet. all of the chipmakers coming out this week, qualcomm yesterday toing a big push into 5g differentiate themselves against competitors like intel and nvidia, which had a big mess earlier this week -- miss earlier this week. if the focus on 5g can help them, that comes in contact with amd.

hi single-digit growth for 2019. they get 30% of the revenue from china. high single-digit growth for 2019. intel losing market share relative to amd. qualcomm, pretty good story. i will keep you posted on the ge call. alix: i was looking at blackstone. that does not include market to market assets. they switched how they are valuing earnings. that is the change. that makes it more interesting. s&p already on the out with earnings. in the see the surprise

sales and earnings. average sales beat about .6%. .2%.ngs beat about strengths?he what is doing well? somell, i think there are u.s. focused firms that are doing better. that's because at the beginning of this broadcast, you guys ran through what's going on in the world and there's a lot of down economies, especially in europe and china. companies that don't have a lot of exposure to those areas are still doing well. the u.s. economy is doing well. that's the area where we should see revenue beats and earnings beats. had a beat on

their earnings per share but missed on revenue. they are down because they said the world is looking pretty rough going into 2019. they specifically warned about it, saying operating earnings would be down, net sales would be down. to try to pull in your horns and get domestic and avoid international exposure? >> it depends on what your timeline is. i'm a longer-term sort of investor. we want to have a minimum of 3-5 years. i would take a look at the really quality companies that might be down because of their dependence on other areas of the world. that's where i would start shopping. lot ofe are seeing a beats on revenue when it comes to energy and industrials. expectations really beaten down.

andou buy into the conoco's boeing's or not? >> it's always what's going to happen in the future, not what just happened in this quarter. i'm not really a macro sort of investor. there are trends that investors need to acknowledge. one of them is aviation. still a lot of people in the world that don't have access to air travel. china is one of the larger areas that is underserved. they continue to biplanes -- buy planes. buyr parts continue to

because they are more fuel-efficient. purchasen important for them because the fuel that goes in, the airlines can build their margins. aviation will continue to be a driving force for a very long time. is a clear and compelling analysis of why boeing makes good sense. compare and contrast that with caterpillar. it seems to be going the opposite direction. >> caterpillar is a tough call. are -- theirthey products are sold by third parties. there's a little bit of confusion about how much backlog their resellers have. building hasing is

been going on for a long time. by that, i mean commercial building and mining. their fortunes are very much tied to those activities. new construction and mining. those are extremely cyclical. especially in china, which has been leading in mining and commercial real estate. clearly been down and the fortunes heavily depend on the fortunes in china. alix: on a broad basis, do you want to buy the companies that wind up having buybacks and dividends because they can offset each other's businesses or do you need to be buying more idiosyncratic companies for upside? what gives you more growth? >> it is a mix, a portfolio approach. you need both of those things in your portfolio.

you have to be constantly looking at the companies in your portfolio to make sure they are doing what they said they were going to do. the small niche products, are they growing? growth is the thing you need to look at in those sorts of companies. that gives you your alpha. for more cyclical results, you can add to positions that have more of an annuity like behavior. that would be defensive and may be some of the industrials -- maybe some of the industrials. you buy a well read company that is not particularly in favor when it is down and sell it off when it's doing better. and you keep rebalancing your portfolio. you for sticking with us. the ge call underway.

comes right out of the box and says this will be a long call, we have a lot to talk about. taking a lot of staff from central headquarters and sending them back out to the aberrations. we don't need central staff. stuff istaff where getting made, where money is getting made. and it'shas bloated costing operations. one of his opening lines -- ge matters. i won't give guidance because we know where we are going to be. david: it would have never been a question -- now, people are questioning, does ge matter? are we doing our job? we are taking a hard look at the board. alix: investors want to see

fast, firm action. it, cds, prices falling there. so far, so good. david: there's a new sheriff in town. alix: advertisers stick with facebook. the social network crushed wall street estimates despite a series of privacy scandals. this is bloomberg. ♪

david: facebook reported a record quarter after the bell yesterday, sending the stock up over 10%. from -- kims, came

from fort pitt capital group. what we see here is consistent with what we've seen before. sales beating by a small amount, earnings beating by a bit more. what are we learning from tech -- about tech from the likes of facebook? think don't necessarily that facebook is real tech because it's product is off. it sells advertising but uses tech to do that. i think of them as a media company. aty are doing really great delivering what their customers, the advertisers, want. specific access to people who are most likely to buy the product advertisers want to sell. ist facebook doesn't do well police itself and really

understand what people who are using their platform want. the whole op-ed that mark zuckerberg did earlier this week sayswall street journal" nobody wants to look at any advertising ever, but we put up with it for a free product. advertiser customer base, this company knows what it's doing. david: what do you make of the microsoft report? they are still growing robustly on the comp side, but the pc side hurt them. kim: isn't that crazy? the pc side has been irrelevant forever. unfortunately, the pc maker, the pc chipmakers couldn't make enough chips for the work

oriented pcs they needed to buy. tech -- youade in like intel and ibm and microsoft. is that still the trade now? kim: it is. because of the capriciousness of social media. what if we all decided we don't really want facebook to know every last thing about our dreams and desires and wishes and we go someplace else? the advertisers will go someplace else. goods not a long-term holding. microsoft certainly is because businesses build their businesses on top of their software. us.d: please stay with coming up, bracing for a forced merger. deutsche bank may need to merge with commerzbank by late year. more, next.

this is bloomberg. ♪

alix: time for bottom line. up, baker hughes. that company out with earnings, revenue beat, earnings and line, but the offshore lng business seemed to be stable in the future of growth. i sat down with the ceo of baker hughes in florence. we talked about the company 's lng business and future growth. >> you look at our lng business, it's about 30%. andee the mix ebbing flowing but we will stay pretty much there. alix: how much do you have to invest in this business? >> we continue to invest in our products. we stay at that 5% rate. alix: will you divert more money

to lng and that technology? >> if you look at timing wise, we have some new investments we started and new platforms that have to come into the marketplace. you will see our investment differentiate across our businesses. if you look at lng, we our spend in00 -- the portfolio and the family of products is going up. alix: what is the incremental driver for you? bread and butter or lng? >> again, you are looking at a short-term to medium-term bump. if you think about short-term, the bread and butter activity is key relative to continuing to grow. we have some great new capabilities coming into our

oilfield services portfolio. we are continually enhancing our drilling systems and looking at ways our drill bits can be improved. if you look at the cycle of lng and the project, that goes into the gas turbine families we have introduced and what we can do from the services perspective. longer-term, you have the new technology and disruptive actions from artificial intelligence, the management of data. this will provide new services and offerings going forward. of that conversation today on commodities edge. we will talk about global decline rates and how baker hughes will change that situation. in terms of lng, there's no doubt that baker hughes is set up for it. now, it is a show me story.

what can you get done? it's always execution. strategy is easy. execution is hard. strategy is so much easier than execution. the ceo ofewing, deutsche bank -- if deutsche bank doesn't get their act together, they will come under pressure to merge with commerzbank. frankfurt and bloomberg's steven arons. how much time does he have? >> the first quarter is really decisive. many people think it is a disappointing one, the pressure will become so big that they will be forced to seek a merger before things get completely out of control.

months.e looking at two by then, we should have a clear understanding of whether this will take place or not. david: are there any indications that they may pull this thing out? >> if we are talking about the merger, there are clear signs the german government seems to back it. bank,nside of deutsche there seems to be a slow realization that they can't wait much longer. we want to wait until next year before anything happens. it is over now. it could still happen that he pulls it off. david: fascinating. thanks to steven arons reporting from frankfurt. tomorrow, an interview with christian sewing.

the question is how you fuse it together. david: we do that again and again -- you take two sterling companies and put them together. off theless you spin bat portfolio. -- bad portfolio. central bankers pivot away from further rate increases. "patience."e word this is bloomberg. ♪

alix: this is "bloomberg daybreak." -- we areting for waiting for eci initial jobless claims.

european banks down by a full 2%. not a lot of european growth. italy in a recession. deutsche bank might have to merge with commerce bank. a weaker dollar,. full stop. dollar, we finally get all this data coming out. the employment cost index up by 7/10 of 1%. that came in late versus estimates. continuing jobless claims continue to crush it. coming in higher than estimated at 253,000. that is going to have a lot of noise from the government shutdown as well. it is going to be difficult to parse through. that employment cost index is also paying attention because it takes into account salaries and benefits. david: all over the united

thees, back over to the eu, eu has now warned eight banks of possible antitrust violations on euro bond sales. we know something about that in the united states, and it is not very pretty. the index down 2% on the stoxx 600 banks. alix: that doesn't sound very good. david: it could have really wide-ranging repercussions. alix: it goes to the whole point of the litigation issues for the u.s. are kind of done, but the european banks not at all. whether it has to do with iranian sanctions, deutsche bank, eurobond collusion. david: we had the collusion with libor, which was a big scandal. we had problems with u.s. bond sales in the past. tend to getnts

pretty sensitive when their government bonds, there is collusion in the distribution of them. we will see how that develops. right now we can tell you they've notified eight banks with a statement that basically says we think you have violated the law with a structured sale of eurobonds. deutsche bank saying please don't see me. [laughter] david: we want to go back to this initial jobless claims numbers. we welcome from boston someone simona.a -- from boston caugheyth us, kim forrest from fort pitt. simona, we will go to you first. >> it was a bit of a high number. i think we should at the very least take note of it. we are operating in a bit of a

data blind spot at the moment. the few bits of data we have on labor markets, i think by and large still give us an encouraging signal. jobless claims usually we don't parse through the full details week by week because there is a lot of noise. in late november and december they were going higher, and the last few updates were more encouraging. see how iteed to levels off. for the time being, the labor market remains in a good place. we are expecting good job numbers tomorrow. the adp report was encouraging. david: how are these numbers calculated? could there have been any effect from the government shutdown? >> i'm inclined to believe there to the effectcts that these workers will be

retroactively paid, which was known. i don't think they will be necessarily taken off payrolls. if you are still on a payroll, you can't apply for unemployment claims, as far as i can tell. i'm not entirely sure we can link this directly to the government shutdown. it is quite possible that because of market turbulence in yearber and typical end of type of reassessment of labor needs by companies, we could see a bit of a bump in jobless claims, and that could be the real underlying factor. we have to see how it plays out in the next few weeks, and then make a decision whether it was a bump linked to the cut down. i'm inclined to say no. alix: there's also the contractors and other businesses that could have been hit, the ancillary thing. i don't know if we will get clarity for a while. kim, what do you think? >> i agree with the economist that this is a longer than a

one-week thing you have to look at. a weighted-average is probably best. but more importantly, i agree that there has been some change in employment, and i would look to retail and the number of sears and kmart's have been closing. i wonder if that had something to do with this because that seems to be accelerating. there's other retailers going through changes, and that is pretty much the trouble area right now of the economy. alix: when you wrap this into what we heard from the fomc where they will need more patients, going to use the balance sheet and base that on economic and financial conditions, is that a clear risk signal? how do you square it? >> i think it is one of the bigger issues that have been taken off the table. i think the markets sold off in december on a whole bunch of different factors, but largely one of the big worries is is the

fed going to be the driver of the next recession? we can point back in history to feds that have been overly aggressive about raising rates, thus creating a recession. i don't think this fed wants that. gotten thate confirmation that they are going to be patient, and more importantly the mystery of how they are going to handle the balance sheet is still going to unfold this year, but it doesn't look like it is going to be on autopilot anymore. that is probably why the markets had a great array yesterday -- great hooray yesterday. david: is it a little premature? are we starting to see some imbalances that might indicate things might get too hot? >> you know, we were all wondering what was going to change once the fed has a press conference after every meeting. i think we can say for sure that it allows the fed to be more flexible and nimble.

after yesterday, i am wondering whether it may not also raise the risk of the fed being a little too hasty. i think we all can agree that after the december meeting, we needed a course correction. but that was under the impression the fed has already come through speeches and communication through fomc members, had already corrected the course. yesterday seemed a bit of an overcorrection. a very dovish statement and tone in the press conference. i'm wondering if this is not a little bit premature. it seems premature to me that we would consider this to be the end of the tightening cycle. mocuta of state kim caugheyl and forrest of fort pitt capital, thank you. here's viviana hurtado with first word news. viviana: high-level trade talks

between china and the u.s. continue today in washington. there is little indication china will give into u.s. demands. today president trump will sign a buy american executive order for infrastructure projects. his trade advisor says it will direct those getting federal financial assistant to use materials made in the usa. and we end the first word in new jersey. this spectacular fire ripped through a paper plant. the most important thing, no one was hurt. even the firefighters battling the blaze in subzero temperatures. at there happening second oldest environmentally from the paper company. 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: it is spectacular, but also looks spectacularly

dangerous, particularly for those firefighters in frigid cold weather. paper likes to burn. alix: you're right. it is a staggering video. looks very scary. hopefully it will work out ok for them. david: coming up, general electric matters. that's what the ceo is saying right now. the company seeing a boost in premarket trading after its earnings were reported. more on that when we continue our deep looking to general electric and include health care, as well. live from new york, this is bloomberg.

vonnie: --viviana: this is "bloomberg daybreak." coming up later, madeleine power." on "balance of

♪ electric calleral is underway after the committee reported earnings that missed come all the revenues were better-than-expected. , all revenues were better-than-expected. taylor: we are walking through the slides now. ge capital has been the key focus here. part of that is the health care team preparing to go public. they will be able to monetize about 50% of that health care business. they want net debt to hit a target of less than four times on the ge capital side, separate from the industrial side. within the power business they want to talk about the underperformance. they were late to embrace the realities of a cyclical decline in that business.

they are resizing the cost structure, the capex, and supply chains to embrace the new reality. they talked a lot about the debt as well and the impact of the bbb.rade in q4 from a to i want to talk about the debt. debtholders look like they are seeing a little bit of an improvement here, certainly leading the rebound relative to the equity bondholders. they've talked about leverage and that net debt ratio about three times on the call. that clearly is a focus for them. david: thanks so much, taylor. taylor: and if you want to clear the debt, what do you do? you spin off things. we are going to stick with ge today. our focus today is on ge earnings. we want to delve into ge's health care unit, long seen as the company cash cow. >> we basically admitted the

x-ray tube 100 years ago. all of the life sciences we do come out of the research center. we see health care as part of the package. betters also one of ge's businesses, making $19 million a year. it is stable. it is also low growth. lifesciences is the growth crown jewel. therapies,gs and imaging and enhancing procedures. now it is just a small part of the health care business. >> health care is fundamentally good. >> they have a liquidity problem. they have a cash problem. selling 20% of the health care unit will generate $10 billion, $15 billion in cash. >> the ceo wanted to sell stake in the unit to generate cash while offloading debt and

pension liabilities onto the standalone business. new ceo larry culp is more optimistic. >> health care operating in an independent form is probably what is best for that business and that team. i think it is an outstanding business, well-positioned in a number of attractive submarkets. we intend to grow that. >> what is worth more, health cash?r a pile of alix: joining us for more, bluebird intelligence's senior analyst and bloomberg opinion columnist. what did we learn about health care? reporter: larry culp is saying he's going to monetize just under 50% of ge health care. that echoes comments he made previously in an interview saying he is looking to bring in more cash. john flannery really talked about a 20% stake. that was likely never going to be enough.

that 50% threshold is about the maximum ge can sell and still keep it tax-free for shareholders. there was worry on whether the structure would stay in place because of the deal we saw earlier this week. that limited the amount that would be spun off to shareholders to raise more cash. there's been some thinking maybe ge would do away with the spinoff and just ipo it to bring in the maximum amount of cash. david: what does that do if they monetize 50% of it because they have to worry about paying the bills? >> they have to make 1.7 billion dollars in operating income from health care. losing half of that is a big not. however, they are moving quickly to getting the debt down, which is part of the cash issue. he's advanced some other sales to provide some cash. but it is a balancing act. he's going to lose earnings. cash flowee conversion, but he's kind of in a box and has to balance both.

about removing health care from the equation and. what that does to cash flow. . a you look at the power unit, huge deterioration of free cash flow in that business. that tells me they don't necessarily know how to fix this yet. larry culp talking about they missed the cycle, didn't time things right, have to cut costs. we've been hearing that now for two years. at what point you start to see some change? i think we are still quite a while from that. that raises questions about what you're left with when you do separate that health care business and its cash generation abilities. >> just to clarify, there were a number of write-offs, so they really lost, if you look at it operationally. they are cleaning up the mess, so it is real loss. that was all most $800 million of that. i think one of the things i found interesting is very culp,

culp,e being ceo -- larry despite being ceo, is a very detailed guy. they are down to the nitty-gritty. he's catching a lot more problems embedded in that business and taking the hits upfront. i will also say orders have now stabilized. for three quarters now, they've been flat. it is going to be a long road. david: looking at just the call, he says they are going to have a in termsour times ebit of ge capital. do we believe that? that would be quite an adjustment. >> it is consistent with the targets they put out before. in the third quarter earnings call, they walked back the timing of that 2.5 leverage target for the industrial business. now they are reiterating they expect to see that.

i think that is why you are seeing such a big reaction in the bond market. it was interesting hearing them talk about the leverage ratios and how they think of them differently. at the end of the day, the parent company is on the hook for that capital debt. they may like to think of them separately, but a lot of people look at this as a combined entity, especially given the problems we've seen with ge capital and the scale of some of those liabilities. alix: on the call, he just said we don't have a timeframe, but the process is moving forward for the health unit ipo plan. how quickly is the market going to need to see things to continue the kind of rally we are seeing in the stock? >> welcome of these things typically take about a year. alix: is that enough? >> with all the filings and requirements, it just can't really speed a lot of that up. as long as we know there is progress, people know it's coming, i think that will really help.

on the asset sales, they said they are not selling g cast. that is the only thing that's left that is good in the capital , and they do need the earnings. they make a lot of money in that business. but there was talk that three or four different firms were looking at it, and there is a price for everything, but he said clearly they are not selling it. rtren to bart -- karen ubelha and brooke sutherland, thank you. elon musk announces a departure of a ceo, dropping the announcement on a call. more on that next. this is bloomberg.

alix: we are looking at tesla. shares falling in premarket. the electric car maker reporting fourth-quarter earnings that fell short of estimates, and now ceo elon musk announcing the departure of the cfo. what is our biggest take away? >> with respect to sales in

2019, you annualize their q4 sales, they are in a decline in sales. they trade at six to seven times. trade growth is falling. that is a big negative. david: they are really finding some profits pressure at this point. the threes are getting squeezed. reporter: if you look at their demand, and the u.s. had their tax credit cut in half. if you look at what happened in georgia in 2015 when they cut their tax credit by $5,000, the next month eb sales were down 7%. we think there is a big decline in the u.s., and a new rep biggest market last year, the 80%erlands, we think an drop from q1. we think there's big problems. david: is that simple price

elasticity? interesting -- i saw something in "sports illustrated" today of a bait and switch from tesla. the other issue is that the cash balance was posted at 3.7, but if you look at the average return on the three-month t-bill over the fourth quarter, you are talking about 2.7 percent. if you adjust that for the fourth quarter, the cash balance and average was around one point $3 billion or $1.5 billion. this is something people need to focus on. outpaced tesla in the fourth quarter in their first full month of sales in norway. a number of other cars are coming. we think they have big problems. -- they haven enough cash to pay off the bond that was going to come due soon. massive gain in inefficiency. musk said they should be

profitable every quarter this year. guest: with was back to the cash, we think there cash balance is much less than what they were reporting based on the average return of the three-month t-bill. if you have cash and you are not investing in u.s. government securities, you have a very inefficient finance department. the other issue with tesla is the drop in q1 sales i think is coming, but also keep in mind elon musk said in a recession we are going to sell 500,000 model threes. the guidance for total car sales this year's three hunt at 60,000 to 400,000. believing his -- 360,000 to 400,000. really great to see you. thank you for joining us. ge we are also watching, extending its gains and trading above $10. we haven't seen that level since last november. larry culp gets on a call with concrete statements. we don't have a guidance yet. this is what we are working

with. david: we had investors and analysts saying $10? i think if you broke the whole thing up it would be worth $10. a lot of it had to do with the remarks about the leverage. they were resuming their commitment to by 2020 getting it down. up for "bloomberg markets: the open" was jonathan exclusive conversation with pimco's head of asset allocation. equities prima go nowhere as the dollar treads water -- pretty much go nowhere as the dollar treads water. this is bloomberg.

jonathan: from an ice cold new york city, i'm jonathan ferro. the countdown to the open starts now. ♪

jonathan: coming, chairman powell taking down any remaining rate hike expectations. the fed completing its which eat. go to bank executives running out of -- deutsche bank executives running out of time, set to be bracing for a merger. this thursday morning, good morning. 30 minutes away from the open. big day of gains on the s&p 500. another two basis points on the 10 year. some dollar weakness once again. euro-dollar approaching one. . .15 chairman jay powell -- approaching 1.15. >> the pause is for real. >> they might be done. >> this is sort of an indefinite pause. >> trying to restart the equation here. >> this is not just waiting until another time to hike rates. i think that was the big surprise. >> the fed can't ignore