may not be a recession year. president trump prepares his speech to congress. we break down the areas of compromise and conflict. nissan ditches the u.k. , andompany scraps plans theresa may's plan b is too little, too late. david: the day after the super bowl, the lowest scoring history -- scoring in history. it was not that thrilling. alix: i went to bed early. did youas super into, know your beer contained corn syrup? there was an ad from a meetingusch where of a crew delivered -- where a medieval crew delivered an

unwanted barrel of corn syrup. the corn lobby went crazy. david: the corn lobby doesn't like talking about that very much. alix: i had no idea it contained corn through up. david: i didn't either. but that is the whole campaign, you should know what is in your beer. romo was great in the booth. in the markets, quiet. the super bowl was quiet, and the markets are quiet as well. going absolutely nowhere, even after a killer january, particularly for oil. euro-dollar flat. a stronger dollar across the board. so yieldseld at 269, up by about one basis point. crude down 2/10 of 1%. a very quiet day with a lot of data, some central banking, and

a lot of fed speak. david: time now for your morning brief. looking at the week ahead, later today alphabet will report earnings. after the bell tuesday, president trump will deliver his state of the union address to congress, postponed because of the government shutdown. get u.s. trade data, as well as toyota. the fed will announce a rate policy decision. now it is time for bloomberg first take. we are joined by gina martin adams and marty schenker. we are going to have the state of the union delayed tomorrow night. last year was all about taxes. this year a lot about trade. this is what president trump said yesterday. pres. trump: it looks like we are doing very well making a deal with china. no two leaders of this country and china have ever been closer

than i am with president xi. we have a good chance to make a deal. i don't know that we are going to make one, but we have a good chance, and it is going to be a real deal. it is not going to be a stopgap. david: he is certainly getting expectations up. >> he is. while trade may be a big theme in the speech, and the context of the government shutdown, which many feel like his- feel like was fault, it is somewhat poison when he gives this speech. david: at the beginning of that interview he said i am not taking another shut down the table. >> it is really hard for me to even conceive of congress allowing for another shutdown, but unless republican senators step up to the plate, they very well could be one. alix: in the middle of earnings season, it is interesting when it comes to stocks in china, for example, retail. >> it is sort of difficult to drill right into the market, as to what the impact is.

we know he's going to talk about trade. these are issues the markets have been contending with for some time. will he mention something like a broader infrastructure plan, health care reform? these are the issues that could take the markets by surprised as opposed to what they have been contending with for so long. the shutdown is more consequent offer the economy and the populace, but not the markets. trade certainly is very consequential for the markets, but we already know pre-much everything he's going to say about trade, so i would watch for other potential surprises as opposed to the issues we've been talking about for so long. david: stay with bloomberg for special coverage of the state of the union address tomorrow at 8:30 p.m. eastern from washington. alix: tune and also on wednesday. the second story we are watching his performance in january and what it means going forward.

it was a killer january for most asset classes, the exception really the dollar. move, the dollar overall. how much more upside do we see here? >> i think a couple of things happened over the last week. on technicals we surpassed a key 50% retracement level. that gives a general hope that we are in the midst of recovery as opposed to correction, so that is important. the second thing to consider is what is happening in earnings. it has largely gone missed, but there is a very different character of reactions and the earnings season then that of the last several. companies that are missing expectations are barely experiencing any downside, whereas companies beating expectation are experiencing really remarkable upside.

there's an underlying tone in earnings that is shifting. i think it is important to watch going forward. companies are telling must we probably will see earnings trough this year with recovery into 2020, a very different environment than the market was worried about last year. when we went through a 20% correction, we were suggesting we were going to fall into some sort of earnings recession. basically, president trump got what he wanted. he got a market rally. he got a weaker dollar. marty: we talk about how we have to be fair, and i do think donald trump has not gotten enough credit for the state of the u.s. economy. we all look for excuses why it is not his tax plan that did this to the economy, but it did have a major impact. jobs are at an all-time high. the markets did recover from the

december swoon. so he deserves a certain amount of credit. david: maybe a different story from the british economy because brexit keeps going. theresa may says she will get a and leadersuary 9, say they would not give it to her. not make, nissan will a new suv in the u.k. continued uncertainty around the future relationship with the eu is not helping companies plan for the future. that is sort of an understatement, probably. gina: but i think the key word is uncertainty. it is just the lack of knowledge. we don't even know if we are going to have a brexit, a soft or hard brexit. i think that is starting to really weigh on business investment and business confidence. we seen that was a lot of jobs moving away from london. now you are starting to see it move into more economically sensitive industries. hopefullyext month,

we will get either a brexit or not a brexit. but if this can keeps getting kicked down the road, ultimately that becomes a really big drag on economic performance. david: what does this mean to the united states? it strikes me that president trump seems to be pulling back from a lot of these things that another president would try to fix. you see right now in japan and korea, the united states is really pulling back. marty: they are. donald trump seems to be very insular in his outlook. yes criticized the eu and the whole notion, and supportive of the u.k. withdrawing and of brexit, but certainly he does not want to see political uncertainty around the world. to a certain extent, his positions are fostering just that. alix: i have to wonder how much of this is going to be like weather and the government shutdown. it will be easy to blame something like brexit.

it's not like the auto industry is killing it. david: in fairness, the european chairman did say there were business consideration, but europe didn't help. alix: thank you very much. good to see you. papa john's now confirming that starboard ceo jeffrey smith will take on the helm as chairman. they are making a $200 million investment into papa john's after the numbers are super ugly. their preliminary full-year adjusted earnings is at the low end of their guidance. comp sales over the last month in the u.s. down 10.5%. david: papa john's was looking for a strategic partner here. basically private equity doesn't look promising and the stock was down, so starboard saying we will buy some and fix it. alix: after really getting beaten up friday as well. coming up, more on january's

rally and whether it is going to last. this is bloomberg.

♪ mark: -- >> this is bloomberg daybreak. an activist hedge fund is reportedly taking a big stake in papa john's. star board will reportedly invest $200 million in the pizza the most intoell months after reports it is abandoning efforts to find a buyer. today billionaire eddie lambert will ask a judge to choose his bid for what is left of sears. the offer would rescue 425

stores and keep 45,000 employees on the job. the other option is liquidation. lambert has been chairman of sears since 2005. during that time, revenue falling to a fraction of what it once was. employeesows google -- 70% indicated yes, 10 percentage points lower than last year. alix: thank you so much. like diversity and inclusion, that was down. google's future was down, comp was down. they are still high, but the trend isn't that good. david: and yet the company is doing very well. alix: but it's been in the headlines, not the way they wanted to. is this going to be a negative for them? david: this is one of the hardest things for a manager to deal with, morale. alix: don't they have foosball

there? everything is a winner over the last few weeks. 2019's first month of training brought big gains, the saga starts for high yields in a decade, and for oil ever. how long is this going to go on? to enter that question, you have to know why behind the rally. what do you think? >> let's put this in the context of december. december was probably one of the worst we've had in a very long time. we had extreme selloff and risk assets. we didn't have any high-yield bond issuance for the entire year. iting this swing back, wouldn't be surprising in any case, but if you add on top of that the fact that the fed really changed its tone, it came

out of the december fomc meeting saying we are looking at two rate hikes in 2019 and started modify that in january. if the conditions have gotten too tight, we are not going to cause a recession. i think that was really welcome news to a market that was going to have a bit of a pendulum swing. david: so that helps if you have valuations. earnings, and specifically about fx's effects on earnings? depends on where you look. i think to the extent the dollar was strong, be there is -- maybe that was a headwind in the u.s. some of the weakness, if you look at trade-weighted europe, it is actually down quite significantly. that is doing some of the work

for the ecb. of course, rates have also fallen, not just in the u.s. rate expectations have declined across the world as well, and that has similar effects. that is feeding into the rally as well. alix: part of that, you mentioned the fed. that's what j.p. morgan said over the weekend. more tolerance of inflation overshoot and less anxious to restrictive policy, then 2019 might not be a year to think about recession. that was the recession at the end of last year. are you rethinking that now? >> yes. if we follow the current dot plot, there is more likely to be a recession policy, eu curve -- a yield curve inversion. with the dollar being the reserve currency, our entire the coded conditions reverberate around the entire world. you look at all the emerging

markets that had to raise rates in 2018 to prevent their currencies from devaluing too much. it is not just the u.s. it impacts the entire globe. if the fed is on a different trajectory, that also infects the entire globe. david: 10 years on, we've got enormous liquidity from central banks. are we in a world where we are going to have to keep that liquidity out without risking recession? >> i think that is the question. that is the concern because we are in a lower growth world because our working age populations are either declining , andowing at a slower rate productivity has correspondingly been low. so if you have a lower potential gdp and combine this with this world where we have huge central banks balance sheets, it begs the question is this the new normal.

back -- is to get some get back to some semblance of what was normal. alix: if you see where we are is a fed that is more cautious, there's no hike priced into this year and there's a cut, so how much more can markets price out anything for the fed before they have to pricing a cut, which seems pretty unrealistic? >> you have to question whether that would be in the context of a more risky scenario. the part where the benefit from a more dovish fed is feeding through the market, i think that is like julie -- that is largely over. growth in the u.s. has been fairly strong, but the key point here is the growth in europe and china continues to this point. investors are waiting for a hint of good numbers from china, and there's a lot of stimulus coming through, and europe as well, looking at the pmi's is going to

be a key indicator going forward. david: growth will sustain the dollar is the fed doesn't with higher rates. >> i think there are two parts of the story. the dovish fed stops the dollar from going up or sets the stage for dollar with his later down the road, but investors are lacking positive reasons to own other currencies. you need some positive growth stories. china will be key. if europe manages to pick up, that will be a big deal. euro is going to lead the dollar. alix: essentially that is where we were last year. >> i think that is where we are. if you look at europe, the question is does germany and act fiscal stimulus. that is something ash germany fiscal -- germany enact stimulus. that is something a lot of people are mentioning. they are at risk of going into a recession. that is a key thing on how it

will play out in europe. david: we've been waiting a while for fiscal stimulus in germany. [laughter] alix: it is not italy. vassili and constance will both be staying with us. coming up, nissan scrapping plans to build a new vehicle model in the u.k. over the uncertainty. more next. this is bloomberg.

♪ david: british prime minister theresa may keeps saying she will get a brexit deal before the march 9 deadline, and european leaders say they are done negotiating. the facts on the ground are changing, with the latest from nissan, which will not go ahead with plans to build a new suv in the unit can good, saying cash in the united kingdom, saying -- in the united kingdom, saying, "the future relationship with the eu is not helping companies

like ours plan for the future." still with us, vassili serebrlakov of ubs and constance hunter from kpmg. >> uncertainty is very high in the short-term, and tough to trade, to say the least. there are so many scenarios right now, but for us the biggest single probability is actually more or less the deal that theresa may got. i know people talk about other options, the referendum, perhaps a hard brexit, but we still think it is the highest. we think you need to get more pressure on the pound to get the deal down. that is part of the picture of what pushes towards a more positive outcome, and then we get a bit of a rebound for the pound. david: in the meantime it is really good for disrupting companies over there. we heard the head of ryanair

saying it could disrupt voting. beall eu headlines have to majority owned by eu nationals, and we have a strategy which will enable us to retain that in the event of a hard brexit. what that would involve is our non-eu shareholders, of which the u.k. will unfortunately be a part, will not have voting of time and period will be forced to sell to eu nationals. david: this is an example of all of the unintended consequences beyond the most immediate, direct ones. this is a perfect example of the types of problems that are going to continue to come out of the woodwork between now and march 29. this is just the tip of the iceberg, and there are a multitude of problems. certainly how goods are traded across the border, what tariff gets applied to them.

france was talking over the weekend about playing pragmatic rules, saying we are not going to go to the wto tariffs. we will keep the current tariffs, hoping we can negotiate something. but hiring new people to be at the border to inspect food and goods coming across, it is just creating havoc and chaos all around. i think the best thing that could happen is a weaker pound, which puts some pressure on this situation because right now you have two sides that are very intractable. eu officials say and they're not rico shading, the u.k. thinking they can do something with the irish border, which seems completely intractable, so it certainly a mess -- so it's certainly a mess. alix: i was talking to a ceo who stockpiled a lot, but they have no idea what it is going to end up being.

it is always easy to blame brexit because it is a headline. it is easy to blame trade, easy to blame weather but the state of the. ther.a but the state of the global economy is not good otherwise if you don't blame brexit. >> for investors, do you want yourself to work? these will have to start getting resolve this year for markets to continue rallying. alix: constance hunter will be sticking with us. coming up, president trump's state of the union. this is bloomberg.

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the mover in europe is the mining sector. bp got a downgrade by jp morgan. of how much oil will percolate. the dollar stronger now, euro-dollar flat. i do want to point out to get beaten up last week, so the dollar rebounding today. btp the yield over in italy. at 17, offread down by 3/10 of 1%. it is like nothing is moving at the moment. david: they are waiting for the state of the union, don't you think? alix: there you go. the sectors to watch, we turn now to taylor riggs. taylor: i want to take a look at

this sector since the election of president trump. it has been overall risk on rally tech. if we get anything from the stated the union, it will hit three key sectors. the first is trade. any conversation about mexico or are the sectors we are looking at, and if there is any suggestion on cam, look at many look atlike -- on chem, manufacturers like boeing. we also might get positive commentary on some of the retailers who have exposure in china. havesays china retailers started to look at more constructive discussions and continued momentum.

ofada goose saying only 16% their revenue would come from china by 2021. concerns of a china slow down might be effect for some of these retailers. beot of conversations will about the drug pricing discussion. united headed lower after health officials rolled out a plan to clawback some rebates. any sort of discussion we've saw could be key for these stocks. david: one of the things we are all looking for in the state of the union is any indication on where we are with china. yesterday the president told cbs today he is hopeful. pres. trump: it looks like we are doing very well making a deal with china. no two leaders of this country and china have ever been closer that i am with president xi.

we have a good chance to make a difference -- i don't know that we are going to make one, but it is going to be a chance. and if it is a deal, it is going to be a real deal. it is not going to be a stop gap. obviouslystance, markets react to news about china. what about the economy? >> our economies are very integrated. we get a lot of our supply chain from china. many u.s. companies are now operating in china. , automakers,pillar chipmakers like amd. let's remember the weakness we saw in china in the last half of 2019 is not necessarily related to trade. it is related to the crack down the expansion of debt which ballooned over the last eight years. the central bank trying to moderate that a little bit.

this sort of fine tuning the economy from a centrally planned perspective will see how well it works, but i think it is going to be harder and harder for china to keep pulling the strings of its economy. david: when president trump was running, it was all about criticism. now we don't hear so much. what would we have if we got a trade deal? >> china has been playing it relatively safety in terms of the currency. it has not been in the headlines a lot. . is the it's stability approach right now. year.as the big fear last talk about risk sentiment and state of the union.

typically it is hard to understand how that filters through to the market. but if we hear about drug pricing and infrastructure, those are things that can actually get done potentially versus things like trade, the shutdown, et cetera. >> i think at this point in terms of the signals for the to mystic u.s. economy, it is going to be hard to see something causes a significant pricing. we actually can portfolio -- we actually build a portfolio of global stocks we think will be most affected. ofhink there's some hopes trade resolution being built into the market. i think it would be very important to keep those alive or push them further in that direction. david: he says it's unlikely there will be something that really affects the economy.

what about infrastructure? president trump said he wanted $1.5 billion for infrastructure. democrats said they wanted to come together for it. would that pose real fiscal stimulus? >> for sure. if they can come together on infrastructure, it would be huge. it should help boost gdp in the first half of 2019. it you are talking over $1 trillion. that would have's essential .mpact obama, it takes time to put in place, but it would almost certainly have an impact on the economy. alix: on a short-term basis, what are the words we need to hear tomorrow that keeps trade alive and further advances the risk sentiment.

>> i think more of the same in terms of we are hoping to get a deal from china, negotiations are going well. that is probably not going to come from the state of the union. >> i would agree. alix: some more of the same? as long as we don't hear bad rhetoric like we are going to go after them and fight, then we don't want to hear too much focus on if you don't give me the funding, we are going to shut down the government again. david: that's one of the things you may well hear applause, even people on both sides of the aisle, saying about trade. i will expect republicans in the regrets agree on that. both very much for being here. join me tomorrow night from washington for the state of the union special at 8:00 eastern time. now let's get an update outside

the business world. viviana hurtado is here with first word news. president trump a standby his plan to reduce the footprint in the middle east. he plans to remain present in afghanistan. a report today and bloomberg businessweek sheds on allegations of chinese tech giant huawei trying to -- steel a trade u.s. trade secrets. the president of huawei wanted to work with us on product negotiation. they would have been in condition. we are willing to work with any company. if you try to steal the

technology, there's going to be recourse. the new england in thes get the win lowest scoring super bowl ever. tom brady becoming the oldest quarterback ever to play the super bowl. he's 41. to put this into context for our global audience, the most valuable sport in the world, according to global intelligence. 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. alix: 41. oldest quarterback. david: he's playing like a 23-year-old quarterback. looked like he may have had a tough time last night. alix: so a boring game? david: i'm afraid it was. it may be a little less valuable tomorrow depending on what the ratings are. i would be surprised if they said any records. blankfein's up,

multimillion dollar compensation could be at risk on the result of one imdb investigation. more on that in wall street beat. this is bloomberg.

♪ viviana: coming up in the next , head ofherine rivera research and strategy. this is bloomberg daybreak with your bloomberg business flash. shares of sony falling the most in about three and a half years. the japanese electronics maker therted weakness in

playstation business. management changes on the way at european discount airline ran air. michael o'leary will move to the newly created role of group ceo. david bonder men will stand out next year. ryanair is having a tough year. over oslo got more intense today. nasdaq publishing its formal takeover offer for 770 million dollars, when's after euro underscored its determination to buy norway's main exchange. new euronext says it has already obtained backing for over four stations. alix: we turn to wall street beat. first up, bear market for julie stern.- for

then don -- then, danske says employee bonuses are safe. sachsll -- and goldman in anblankfein results fbi investigation. david: let's start with julius baer. he said it is a tale of two halves in 2018, and this is the second half. 2018, itook back in .as more difficult david: for the market overall, but they got hit particularly hard. alix: shares are responding in tandem with that. this is interesting in a broader

sense because a lot of asset managers over the past couple of years have really benefited from the market appreciation, just from stocks going up. it masked a lot of the issues getting worse and worse in the andstry, people shipping demanding more from their wealth managers. how many of these guys can actually exist in the market? alix: that's right -- >> that's right. that is also a big endeavor. it takes a while to find a business using is going to mess with yourself. in the meantime, how do you find a way to cut costs? david: we has come about may be a hostile takeover, and he says it doesn't happen in their business. the point is they have to decide to merge with somebody else, essentially. they can't have somebody just take them over. >> it is also interesting they said they will hire the same amount of wealth manager relationship people in 2019 as

they did in 2018. does that mean that they are going to have to merge with someone to get the cost reduction that they need? problemanske bank a big with the scandal of money laundering through estonia. they said don't worry about it, bonuses. not sure how that works exactly. >> i'm sick it seems like they are in a corner with continuing to attract and retain talent. this money laundering scandal has been an enormous overhanging for them, and they are saying to not taken effect on your bonuses. david: i thought it was pretty remarkable. when youthe same time, are trying to represent the bank

as an employee, it is one of those things. our bank is undersea. david: typically, but it's got to hurt their overall earnings, i would think. >> sure. talk about to, morale commode is the morale of your dog effect. david solomon, former ceo of goldman sachs, they had about $23 million for solomon and $25 million for lloyd for 2018, but it is tied to a scandal -- to the imdb scandal. >> this reminded me of multiple stories coming out of the crisis in 2009, 2010, where the word crawl back was everywhere. people were talking about cronbach's -- about crawl backs and putting them more and more

in people's compensation packets. if this scandal gets worse, we are going to claw back some of your compensation. david: that is the point. let's find out how this goes. according to our reporting, it involvedhe vice chair with international emerging markets. >> i think it remains to be seen. we are still trying to figure out if this is a contained event or whether there's going to be more to deal with in terms of compliance failures across the bank. i think they are reserving the right to look at that again and selves accountable. david: when you're in charge, it is all your fault, whether it is your fault or not. alix: agreed. david: that comes with the territory. alix: totally. but if it doesn't have your watch, why are you getting

heard. thank you very much. coming up, a crackdown on china's huawei continuing. businessweek sheds new light. that's coming up. this is bloomberg.

♪ david: the crackdown on china's huawei continues. erik schatzker has been following an fbi investigation, specifically its dealings with the chicago area startup. , we'vet-case scenario been publicly discussing some of the work we are doing. it could potential he put them in the right direction in terms of what to optimize, and i would say that is the worst case from a weapons standpoint. is simply tose give injury a -- simply to

.ifferentiate who is using he's talking about huawei? reporter: talking about while way, and talking about two almost equally unpleasant options. the other alternatives, which i have to say if the worst case scenario, is that while way was acting on behalf of the chinese military and trying to obtain trade secrets because they have application in laser weaponry. none of this has been proven i want to make that very clear. but everything this company suggests that it was after something. david: what do they say?

reporter: reporter: i've made repeated attempts to contact while way. i laid out what we had an tried to communicate with them many times over the weekend, and didn't get anything back. reported we would have it. david: my understanding is this technology is subject to restrictive conditions. has while way agreed to that. -- agreed to that -- agreed to that? --x: the technology issue reporter: the technology issue is for diamond coding, how to put it on the kind of class you put on a smart phone. the problem is the diamond coding has applicability in aerospace and energy and defense and weaponry.

it is a controlled substance, if you will, under export law. in conversation with the executives come of the little start up at issue here, representatives from huawei acknowledged more than once that the fed will feel the blast of diamond wrath. if that is the case, that constitutes a violation of an export control regime. alix: you said it yourself, a small tech startup. >> this is a tiny tech company. alix: but the fbi took it quite seriously. the operations that happen at the sideline of ces, where are we now at the ces of events. reporter: there was a month-long investigation reporter: i -- long estimation -- month-long investigation. facts alone, these

remember last week with the dual dualaccount indictments -- multi-account indictments. where it goes from here is unclear. fbi,rosecutors, not the after decide -- have to decide whether they want to seek indictment. whether they think the case merits charges that would create the option of paneling a grand jury. if they feel the evidence is compelling enough, they may seek charges without a grand jury indictment. this is where the investigation could go, but i want to emphasize that to my knowledge, that decision hasn't been made yet, and it is possible they will decide that this doesn't warrant that kind of approach. .

while as an octopus and this is one tentacle. it comes down to motive. initially -- and everybody needs window that i spent a lot of --e with the company initially we were going to hold everything back until the justice department or fbi moved to do something. but when it became a commercial imperative to make this public, they decided to go. david: thank you very much. murphy'sing up, carol united cfo will join us. this is bloomberg.

♪ alix: jp morgan says too early

to play defense. the bank says 2020 may not be a recession year as the bank it's cautious. stocks to watch. president trump prepares his speech to congress. we break down areas of compromise and conflict. in venezuela, president maduro digs in his heels. how the oral industry could save the country -- the oil industry could save the country. david: i'm david westin, here with alix steel. i'm told we have some news. alix: yes, it appears bill gross is retiring. it is like the end of an era for the bond fund manager. he scott disick of something else. . , -- he's got to do

something else. david: we will have a an interview with bill gross at 8:30 this morning eastern time. alix: on the markets, it is very quiet and calm. s&p futures up by two after a monster january. euro-dollar pretty much goes nowhere. the dollar nicely rebounding after getting slammed after that press conference wednesday. 10 year yields in the u.s. up by about one basis point, but now cruising to the downside off of a two-month high. venezuela is such a huge story. now let's take a look at the week ahead to see what's coming up. later today, alphabet reports earnings after the bell. tuesday president trump delivers his estate of the union to congress -- his estate of the union to congress. wednesday we get earnings from

fiat chrysler. thursday the bank of england will announce its rate policy decision, followed by a news conference with governor mark carney. month of9 first training runs the biggest gains in global equities in january for at least 30 years, the strongest start for high yields in a decade, and the biggest ever.y rally for oil how long can it go on? joining us is charlie mccallie murphy.charlie what do your model say right now to do with the rally? >> we made a case at the beginning of december before the worst of the move that there was a high likelihood that the system adam trend community was likely to pivot and short equities. that is exactly what played out over the course of december and

helped set the table as it pulled along the fundamentally's -- the fundamentals universe due to the growth scare, due to concern about fed policy. it set the table for this risk rally so far in january. there was a window of time over the last two weeks to see a pullback based on historic analog of some very powerful selloffs. especially the corporate buyback was out of the markets the last two weeks. the fact of the matter is with pivot, with this maxing out of the positive trade leakage with china and u.s. negotiations, i think now you are at that point where models in pivoting back max long the u.s. equities space, and that is a big deal. that is partially a mechanical function of the fact that the one year window is now dropping off those early february 2018

dates. the down 2.4% february 2, 5.4% february 5. you get that mechanical pulling down of the trigger, and now we are pivoting, as of december, back long. david: is it a put? how reliable is it? >> it is interesting how quickly we have started pulling out that powell put term. i think what we saw in the term from a fairly hawkish view to on pause is very important. i think it is going to continue to provide a buoy for the market overall. i also think there's some potential positive catalyst to come. we think trade war has been a big drive on the economy overall. i think both trump and xi are very motivated to come to a resolution. if we do see some sort of agreement, that is going to be another powerful driver of the market. note jp morgan had a

talking about prolonging the investment cycle. 2020 might not be a year to rethink recession. >> i don't have any audio. alix: can you hear me? we are having audio issues with kara. charlie, when you talk about it from a technical basis, i thought buybacks weren't has hot. i thought investors didn't love them as much as before. charlie: they are probably being rewarded less because the market in that late cycle expansion phase, certainly in the first half of 2018, even with volatility, there was a procyclical move in the market. fixed income trade was one of the most crowded trades in the market. people wanted to reward actual organic growers as opposed to the balance sheet gains of buyback where you are simply shrinking the float. now i believe as investors have

shifted to this late cycle mentality, corporate treasuries are upping right now, and i think you will see that again rewarded. buyback performance has been pretty strong. david: what about fiscal policy, specifically tax policy? what the administration told us was you are going to gain a lot more. where do you see it? ara: we are looking at pretax profit growth of about 4%, down compared to what we saw for 2019. i think the difference is lower spending. but we are looking for is operating margins. 10 years into the bull market cycle, operating margins have been very high. they reached levels we've never seen in history but poor -- in

history before. thoseseen so far that operating margins continue to be quite strong. i think there's still a fair amount of very healthy corporate earnings outlook. alix: so what do you like? from a high level i prefer value overgrowth. huges been a outperform her in this cycle. valuations are way below where they were a direct echo, particularly as we head into the latter end of this growth cycle. i think value is going to outperform. we are looking for opportunities in sectors that are not necessarily tied to topline gdp growth. companies that are not determined on broad-brimmed cycles. you think health care. there's some long secular trends supported there. financials, which tend to be fairly cyclical, but can benefit

from any steepening of the yield curve. david: charlie, what about correlation across asset classes? charlie: think right now you are seeing the end to said this -- the antithesis of 2018 trade behavior. representation of a maximum easing environment. what you got from jerome powell was a move towards qe and away from quantitative tightening. as long as that negative correlation of fixed income and equities is maintained, this is that environment long risk assets. at the same time you are able to benefit because the fed will be closer to easing in the market is anticipating that, which means a steeper yield curve. it should reward cyclicals, value equities, things like that that have a high sensitivity at

the beginning of the next easing cycle. alix: this is a really interesting chart inside the bloomberg. basically 60 million pulled out of stock etf amid this rally. what is it? charlie: there has certainly been pervasive skepticism with the viability and sustainability of this rally, which, in turn, counterintuitively, is the fodder for it to keep melting up. you haven't seen the adjusting from the retail side after redemption comes at the end of last year behind so much of that q4 drawdown. now people are being chased back into the market, which is only going to be exacerbated a jerome powell shocking everybody and coming in so devilishly, pivoting back towards qe.

i think now you have a sister ration -- a situation moving sooner back max long, potentially pulling people ar bk in. david: thanks so much. kara murphy will be staying with us. back to that big news of the hour, bill gross is retiring. bloomberg's taylor riggs has more. taylor: let me pull up the chart we have of the global. unconstrained bond fund we know he will be retiring -- global unrestrained bond fund. we know he will be retiring march 1. in anticipation, they've looked at the cohead of global bonds and portfolio manager to become the manager of that global unconstrained bond fund effective february 15 to assist in that transition. that is certainly in focus this

morning. i went to pivot quickly to get gannett, which owns newspapers like "usa today." it has rejected a proposal from they sayprises that significantly undervalued the company. pursuestead will creative growth. gannett coming out and saying no thank you. david: so fascinating because gannett has a reputation of buying newspapers, and now they are faced with a private equity , so gannett is seen as the one preserving journalism. alix: at some point you had the law of numbers. you cannot bring any more -- david: unless it is for the real estate or some other benefit. not really be journalism. alix: exactly.

coming up, potentially you want to watch president's state of the union address. how it can influence equity sectors, that is coming up next. this is bloomberg.

♪ alix: this is "bloomberg daybreak." bill gross is calling it quits. the one-time king of bond funds is retiring to focus on managing his personal assets and foundation. global unconstrained bonds now has less than $1 billion in assets. gross making his name at pimco, but left their and 2014 due to a management class. a 32%estor group will buy

premium in the company's average stock price during the 30 days leading up to february 1. buyers are led by private equity firms hell-bent and freeman -- private equity firm hellman and friedman. -- the national corn growers association tweeted, "american corn farmers are disappointed and would love to discuss the many benefits of corn." that is your bloomberg business flash. david: tomorrow night is the state of the union address. last year president trump focused on tax reform. this year much of the potential will likely be on trade. he gave an interview on cbs tied to the super bowl. pres. trump: it looks like we are doing very well making a deal with china. no two leaders of this county

and china have ever been closer than i am with presidency. we have a good chance -- with president xi. we have a good chance to make a deal. it is not going to be a stopgap. murphy of united capital is joining us. being 40his going to -- going to mean for the earnings of these companies? guest: using about the other headwinds, president trump can't really impact that. the fed is one of the most important determinants of the market. trump tried to influence the fed and may have actually made it more difficult. when he think about trade, that is one thing that is very much in trump's power to control, and he's also very motivated to come to a resolution. third year in a presidential cycle, looking at reelection. the more important impact about having a resolution on the trade ofnt, the direct impact

tariffs, it is much more in business psychology. the longer the dispute carries on, the more impact it has on future hiring ceos are doing or the next factory they are going to build. having a resolution will re-instill confidence. david: how much of the market is priced in? is the market basically assuming there is going to be a deal of some sort? guest: i don't think it is fully priced in. i think if we see a real deal, as trump said, and we have competence it is going to be followed and implemented, i think we still see some more upside in the market. alix: you said you like values. what you do with cyclicals like caterpillar, who have been really hit by trade concerns and slowing growth in china? guest: that is one area where i would the steering clear. the u.s. economy is still the brightest boat in the ocean. some areas outside the u.s. are

struggling, and i think will continue to. right now i would steer clear of those. david: let's go to something that might not be so cheerful out of the state of the union, and that his health care, particularly pharma. he has said repeatedly he think drugs cost too much, and that is something the democrats agree on. what does that potential he mean for health care stocks? we couldat is one area see additional pressure come about when we think about the broadening of health care in general, you are having more people access to those drugs and devices and doctors, so you are broadening the set of customers they have. specifically and pharma, we could see pressure on drug prices, but the other benefits will overwhelm that. alix: what about something else on the upside for infrastructure, or where we could see president trump reach across the aisle? what are the odds of that happening from where you sit, and how would that play? guest: i think it is probably unlikely we see a major

agreement between both sides of the aisle. what we've seen historically with the last several administrations, it's become harder and harder to broker-deals between both republicans and democrats. i think a big infrastructure deal is going to be very expensive and hard to do. david: to expand that out, reports are that the president is going to go in front of congress tomorrow night and say we want to get back together. we want to have bipartisanship again. that he's sort of learned his lesson and wants to get deals done. if the markets believe that, how would they react? guest: i think it is definitely a positive. i'm just skeptical about whether or not it can actually get done. if you think about it, clinton ran on this. bush ran on this. obama ran on it. they all ran on the idea they at brokeringer deals between democrats and republicans. we seen that has become harder and harder to do.

i'm skeptical. david: thank you cara murphy of united capital. tomorrow night, join me from washington for the stead of the union special at 8:30 p.m. eastern. hedge is, starboard said to have taken stake in drugmaker meyer squibb. live from new york, this is bloomberg.

♪ david: i'm known for the bottom line come over we took a look at -- bottom line, where we take a look at three companies worth watching. first up, meyer squibb. alix: how big is that deal again? david: $74 billion, a huge deal. they made their filings with sec. it looks like it might go

through. alix: i'm taking a look at wirecard. reports last week of allegation of fraud, and wirecard is out strongly now trying to defend its reputation, either trying to with an independent investigation to try and dismiss concerns. it had been totally hammered. ed lost $5.7 billion. they said they were suspicious transactions they flagged internally and then did nothing about. david: i remember when that report came out and they got hammered, and now it is back up because they say it is not true. alix: the ceo saying they consider this whole issue resolved. david: good luck to them. the third story is papa john's. for more, we are joined by bloomberg's opinion columnist. reporter: starboard is taking a

$200 billion stake in papa john's. this is interesting for a couple of reasons. conducting has been an internal review after john schnatter stepped down over remarks regarding the nfl. they seem to have not gotten offers for the entire company. instead they are doing this starboard deal, which also may be an easier deal to get done from the perspective of papa john's because in order to have a buyer come in, you had to come up with some sort of wrap up -- wrap up with ter, so this may be a way of easing tensions, hopefully getting papa john's back on a more stabilized path. david: there's a lot of drama going on, but certainly they are going to have to fix it. reporter: what i thought was

interesting is star board is known for being a cost cutter. that's what they did with olive garden. but they are talking about investing in papa john's, to be better as far as advertising. it is sort of perceived as being expensive, and they have lost their message is a way to sell people on that price point. they are talking about reinvesting in advertising and stepping up their technology. companies like domino's and pizza hut that are out in the forefront of restaurants in terms of technology. alix: how far behind are they? it seems like quite a bit. reporter: it is difficult to catch up in these things. there's a real first mover advantage. once you get comfortable orting with -- ordering with dominoes or pizza hut, you are not going to switch. david: star board value doesn't typically manage things. reporter: the current ceo is going to stay on.

he was the chief when john schnatter was there. he's taken a lot of heat and been blamed for the problems the company is having. the company says it is more about the controversy. we will get a chance to see now whether or not that is actually the case or whether papa john's has a lot more of her to do. alix: last time you ate papa john's? david: it's been a while. [laughter] alix: thank you. coming up, and exclusive -- after heth announces his retirement. this is bloomberg.

alix: this is bloomberg daybreak during happy monday during happy quiet trading day. coming up we have boe, state of the union. not seeing any big movement.

s&p unchanged. european stocks weaker. to howre questions are much the iron ore rally will continue. in other asset classes, a stronger dollar story. no move in the italian bond market despite the huge selloff we thought the end of last week. 18 basis points in the u.s.. crude moving lower as we continue on with the session. despite theost 1% fact that you have the venezuelan oil disruption. the other piece of breaking news. bill gross is retiring. the age of 74, about to turn 75. we want to take a look at his performance in janice henderson. this chart -- the blue line is how much the total assets --

they grew in the they plummeted afterwards. is when he half year had outperformance of what his assets were doing. he was doing much better the second half of the year. alix: interestingly enough he had $700 million of his personal money in the fund but did not track -- did not attract that much outside money. the actual move up this is probably less than you think. david: he had more originally and there had been a lot of redemption recently. 's annualized returns of less than 1% at janice did not live up to that higher term. david: this does not reflect what he did at pimco. he had an amazing performance of pimco for many years. you have a at the entire body of work. alix: very interesting. an exclusive conversation coming up. it is also hard with the volume and volatility.

means you do not have a lot of the trading action. bill gross now joins tom keene for an exclusive interview on radio. take it away. m: we welcome all of you on bloomberg television and radio worldwide. tom keene in conversation with the gentleman retiring today but you know he will never slip away from the financial analysis of his cfa institute. bill gross joins us with janus henderson. congratulations on retirement. i want to get to the track record and the challenges you had. how did you get here? how was this decision made? did you make this unilaterally? unilaterally and in combination with my family it my partner, amy schwartz,

has been almost a half a century of watching screens and waking up in the middle of the night to check asia and europe. that is a long time. i've a few super bowl rings along the way to look at and it is time to enjoy myself and enjoy my family. the catalyst of outflows of funds, was it harder givenage the janus funds the repeated outflows you've seen over the last couple of quarters and years. bill: not really. half of the fund is mine and i've not taken any money out of the fund. others have. i look back on it and the performance on the unconstrained fund in the past watcher years with janus has been unsatisfactory, no doubt, but still positively positive and normal and -- in nominal terms. what i would like to mention is i've managed total return

accounts for janus and they have outperformed like the old days at pimco. 100 basis points over. maybe i should have stuck to total return and been more constrained. tom: this is an important point. mr. gross had a number of ideas, including fighting the fixed income battles of mutual funds. i was talking with our john gittelsohn in los angeles and within the unconstrained model, the perspectives model of this phrase unconstrained, what did you learn about the pros and cons, the difficulties of the phrase unconstrained? bill: unconstrained has come to mean go anywhere. the total return concept i was developed on a concept of measured risk-taking.

it is what i learned in the days of blackjack. you did not put a lot on the table. for the past three or four years the negative trade for unconstrained has always been germany versus the united states in terms of a spread. started inman bund's my portfolio at 190 basis points over and are now 250 over. that has been the big decider and probably one in which i should put too many chips on the table. tom: this goes to the hedge funds and the underperformance of hedge funds. was the underperformance you faced in the last year with unconstrained because you were not diversified? is the phrase -- the phrase unconstrained gets you and will focus where the bets are too big to go back to ed thorp? bill: i think you did for me and

other unconstrained funds, if only by the nature of the term. oldold bedsore terms -- the ruined, terms, gamblers you can only bet 2% of your capital. i had positions in unconstrained that were significantly more than that, especially the german/u.s. treasury trade. that was probably too much. it was an unconstrained portfolio. investors were expecting hedge fund returns. for a while it was only 1% to 2% and that was unsatisfactory. tom: this goes to your perspective. we should point out mr. gross has written all sorts of academic work for the cfa institute on finance and the integrity of financial theory. you have lived it. is the hedge fund model broken

because it is a non-diversified model? bill: i think it was broken for a long time. obviously the hedge fund concepts adjusted long and short but it was one in which managers took a lot of risk. when you speak to diversification, perhaps most of those hedge funds were non-diversified in terms of the risk they were taking. they were taking risk and still are. andhe extent markets moving -- in risk off type of mode and they have in december, than the hedge fund concept is an exposure of risk as opposed to anything else. it needs to be more diversified. tom: if you're just joining us, william gross with us of janus henderson who announces his retirement at a very young 74 years old.

this is after 45 years of work. welcoming all of you on bloomberg television. if we look at the investment return, you mentioned the german trade, the spread trade with germany. did the central bankers getting your way? are you willing to blame underperformance on federal reserve officials, ecb officials? these people do not go by the book and bill gross got run over because they did something new and original? bill: not necessarily. they did not go buy the book and it is up to the portfolio manager to analyze what the new book is. five, 6, 7, 8 years quantitative easing has provided an opportunity for investors to take advantage of capital gains. the question became in terms of germany versus united states, what with the effect of u.s. tightening by the federal ultimate -- and

the ultimate exclusion of quantitative easing, what would that do relative to what was happening with the ecb? if the spread continues to widen until today? that is a long-term situation. tom: this is critical as you invest your own money. everybody else wants to know about what you feel about central banks that got away from phillips curve theology over the andbalance sheet adjustment quantitative tightening. which of those was the harm? was it the balance sheet dynamics or the death of the phillips curve dynamic? bill: it is both. in terms of the balance sheet, i find it interesting that the fed expanded its balance sheet are in quantitative easing for approximately $4 trillion.

credit in in which the united states was around $60 trillion, to my way of thinking in 2007 or 2008, the fed was in a highly leveraged situation relative to total credit. it was $1 trillion versus $60 trillion. they expanded that and equity ties their portfolio to $4 trillion. now quantitative tightening, reducing that to some extent, although probably going to stop the next few quarters, it is perhaps at a point where the leverage inherent in the fed's balance sheet in the leverage inherent in the u.s. credit economy is better. let me put it that way. not necessarily satisfactory. tom: so money times i have found a lot of acclaimed managers in

whatever way are shown the door months afterwards, whatever their play was works out like a charm. kind of condition were yields come up in the spreads normalized? do we get a jump condition and abruptness to some outcome in 2019? bill: we do speak to different central banks. in the u.s., the fed is at 2.5% in terms of fed funds. if you assume inflation at 2%, you have a half percent in terms , which isterest rates about as highs you can go in a leveraged economy. and the rest of the world, let's take the ecb and japan. with their 0% interest rates or negative interest rates in germany, there is a very

different situation. things have not changed. i wonder, versus the u.s., what that means for their economy? i've mentioned many times on your program the disadvantage, in addition to potential theation down the road, disadvantage of negative interest rates and row interest .ates insurance companies and banks are does advantage so the savings function is at risk. tom: this is important. one more question and then switch themes in this generous conversation with bill gross. we have negative interest rates. .his was a huge theme at davos the chronic nature to negative interest rates in europe that rebounds on the u.s. as well. is that something that goes to a breaking point or do you have an optimism that ecb in europe as a political entity or kate itself

from these negative -- as a political entity can extricate itself from these negative interest rates? bill: i think it will take time to observe. haven't we had that for the last four or five years? what we have found with the ecb is these rates are just enough to keep growth above the line, and just enough to keep inflation at 1% to 2%. dish becausepetri they've been doing this for 10 or 15 years. economists would have predicted that if the government was buying up all of the debt issued by its treasury or if the central bank was buying it, the debt would be inflationary, but it has not been cured the quandary going forward is for other central banks, will this behavior create inflation and in my context will this

disadvantage savers to the point where the savings function and investment function is disrupted. tom: we welcome all of you on bloomberg television and bloomberg radio. bill gross announcing his retirement today. we are thrilled to bring them to you on bloomberg surveillance. ohio,ew up in middletown you want to san francisco to get as far at from tom brady as possible. .ou did war duty in vietnam decorated for that. there was a time where savers could actually save. you go back to the 1970's, it worked. the 1980's, it worked. i want you to speak to our savers on television and radio who have not gotten a fair deal in the gilded age. when to the savers finally get a break and get a real return? bill: to be fair it is better now than it was a year ago. they have a chance to stay up

with inflation with their money market account. not andng time, it has i suspect going forward, if the fed stops here there will not be the same advantage over the past 20 to 40 years back to when i started in the early 1970's. what does that mean? to a savor it means they fall behind. pension funds fall behind, individual funds fall behind. it has only been the stock saviorthat has been the in terms of their necessity to egg and many individuals do not invest in the stock market. you have to get the interest rate above the inflation rate in funds andive pension

insurance companies a fighting chance to take care of their liability. tom: that is a great summary. do you anticipate that will occur or is there permanents to the gilded age? the president will speak at the state of the union with a wide perception that it is the narrow haves and a huge body of have-nots who cannot get a fair shake in fixed income or equity markets? will we shift to some form of real return and persist with equity returns? bill: i do not think so. if it does, it will take a long time. in 2005 and did 2006 to raise fed funds to 5% or 3% real was to break the leverage economy. some would suggest we are less levered now than we were in banks and capital, and we are, but debt to gdp is still 250% and climbing. around the world it is higher.

central banks have to be cognizant of the fact that a certain interest rate good break the global economy again. is that a realistic observation? is also a negative for savings institutions to be able to pay off their liabilities going forward. one of these days, large pension funds will simply say 3% is not enough. i've guaranteed 5% or 6% for my pension retirees. we will need help from the government. tom: we have every other city out there. everything but fancy newport beach underwater. serious actuarial assumptions in america that have gone wrong. how urgent is that and went to ,he owners, the pension owners the people not making the assumption, wonder they say enough? i do not see that

pressure out there. problem is a long-term and politicians and even the public want to observe long-term problems. they tend to want to look for today as opposed to tomorrow. it is a problem. how might it be solved? it might be solved by this melding of fiscal and monetary policy we have seen in japan and the united states and elsewhere. what does that mean? it means united states could issue debt to solve these problems that have the central bank by back itself. is that a negative? is that a potential harm to the economy? certainly, but what we have seen in japan is it is working. to me a long-term forecast, i used to be negative on this. 50 to 60 join dollars of 50 to $60s --

trillion of liabilities. if it is not inflationary, then perhaps they can pull a rabbit out of the hat. i do not think so. i think they might try. tom: bloomberg television and bloomberg radio. william gross with us. we are thrilled he can join us. i want to go back to the theory of the moment. i have a book from 1962 which is a bunch of fancy theory your britain about. i think of joseph cohen and others that have written about the architecture our viewers rely on. does that architecture still work? does the sharpe ratio still work and all of the other mumbo-jumbo, the alchemy of trade? bill: it does but it is much less than it used to be. the financial markets have , note so sophisticated

only with advanced theories but with speed trading and computer. i think it still works, but to expect information to be higher than one or one half is unrealistic, certainly in an era of low interest rates. tom: out of pacific management company and over at janice had on hisr. gross just a munro trader, which is how he got his information advantage. are you suggesting the information advantage for all of active management equity and fixed income has to give way to the wonderful john bogle passive investment? comment on active versus passive and the legacy you know from mr. bogle. bill: i'm still a believer in

active management. jack and i would go back and forth. i am always willing to a knowledge indexation's primary benefit is that it is low fees. investors in some cases do not pay any fees for index funds where is active management can charge 50, 100 basis points depending on the risk asset. keen active managers produce those returns to compensate for the fees. with interest rates as low as they are, remember, tom, low interest rates are the foundation for returns for all other assets absence euphoria, which we have seen in the past few years. , they are going to be much less than they were. if they are, active managers have to lower their own fees and recognition of their inability

to return a proper rate of return to their investors. left, ithe time i have want to touch upon your philanthropy. do you still own any stamps or have you sold all for medical research? bill: i have six options going forward. the bulk of my stamp collection is still to go. everya little tear auction i have. in the past 10 years since i started the option, about $45 million to $50 million to fill anthropic institutions, including a smithsonian stamp exhibit and post office in washington, d.c. and post office which is lovely. i still have a few left. i may keep one or two in the next few years. tom: one final question. i would note the discussion that

gronk may retire from the patriots, i guess edelman will go forever. brady,s this guy, tom who you have shown a lack of affinity for. you're not going out on top after a difficult track record at janus henderson. do you suggest mr. brady take the high road and retire and go out strong? bill: based on last night performance, he eats right, he works out right, he has a belief you can keep on going for another few years and as a quarterback he does not need to be fast. he needs to have a strong arm. go and evidently and perhaps going forward he will be defeated in a super bowl and cash in his chips. the as a lot of rings and i have a lot of rings. i am proud of my total return concept, i am proud of the innovative assets we were able

to move into like mortgages and financial futures and tips and so on, which is the basis for performance in pimco. i had a great career and i'm proud of it. the last few years, we will wipe those off the magic slate and go forward having fun and enjoying life. david: that was bill gross, on tomhenderson manager brady, the patriots, and fixed income. we want to term to lisa abramowicz. what about this career? lisa: a lot of people were saying he should have left it at pimco because this last few years at janus henderson have not been a highlight. his benchmark, while he has managed to generate positive returns.

he embodies the 30 year bond market tear we saw. the incredible return. heembodied it, he wrote it, capitalized it and then he struggled figure out what is next. alix: that is what we're facing right now. how hard it is to be an investor in a world where rates are still negative. the world and not been expecting it. lisa: including bill gross. me thenteresting to unconstrained fund, which was so popular in 2013 has underperformed steadily and charged larger fees, again and again showing it is hard to have human judgment on macro calls in that setting. again and again in this era. it raises a big question. david: the rules of the game changed on him. who expected trillions of dollars pumped into the economy?

increasingly, i do not think we're going back to normalization. lisa: you can blame the central banks but there is also been a shift with respect to growth and a shift with respect to globally developed marketing -- markets. the world has changed. alix: let's leave it there. a good way out. lisa abramowicz, thanks for joining us. coming up, bloomberg markets -- the open. in the markets, it is a calm and quiet monday. futures go nowhere. the mining stocks in europe on the downside. the dollar strong on the day. this is bloomberg. ♪

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

the federalming up, reserve suggesting chairman powell is coming around to his way of thinking even after the economy continues to look resilient in the face of weakness across asia and europe. and the president talking about the prospect of a trade deal ahead of the state of the main address. from new york city, good morning. the price market about as exciting as the super bowl. futures going nowhere. it has been this way for the last couple of hours. the u.s. dollar dead flat. treasury yields with a bit of a left. up three basis points. debate right now and through the weekend after a stream of solid u.s. data. is it a mistake to price out the fed? >> this is not an end to the rate hiking cycle. >>