going into this meeting, both sides have reason to get some kind of concession. if you take a look at where north korea is right now, if the economy is bleeding, a contracted 3.5% in 2017, and its people are in dire situations. two out of five, so yes, kim will have to give some kind of concessions to help ease those. in the u.s., trump has to bear in mind that complete denuclearization, which is irreversible, is not happening. obviously, given that north korea has built upon its capability, so we are now keen that denuclearization on the

part of north korea. going forward, lots of difficult discussions to be had and questions to be answered. thehe starting point, it is defamation of denuclearization and it is as they sit as that. david: thank you. that is haslinda amin reporting this week from hanoi. lix: in the markets, you have geopolitical risk tensions percolating through asset classes. s&p futures off by five and weakness in europe with the dax the underperformer. look at the dollar-yen. they are off the load the session but that is one to watch. 10 year yield goes pretty much nowhere, day two of jay powell's testimony. you did see some buying across the curve and crude up by 2%. you do have the saudis coming out and saying they are leaning towards extending cuts into the second half of the year because

oil inventories in the u.s. are brimming, ignoring for the most part president trump's tweet to opec, which is, guys, take it easy, here. he is not listening. david: i think you said, relaxed. alix: there like, no, we are going to extend the cuts. david: we are joined by michael mckee, are correspondent -- our correspondent. let's start with the big geopolitical story, which may not be in hanoi but cashmere -- kashmir. further deterioration in the situation there with reports of shooting down just over there -- shooting down one of the jets over there. mike: there is a lot of concern on where this goes. there is an ongoing issue that they have not solved with tensions between the two countries. the last time we saw this in 2001, saw a million troops on the border and there was a great fear of war. there was a convocation by the fact that the trump administration does not have a

good relationship with pakistan. everyone knows accident harbors terrorists, but future trade administer -- administrations worked with them and it is harder with the administration now. china is building the centerpiece of its belt and road project. through the pakistani controlled area of kashmir. china has an issue to worry about. it also plays into the indian elections. there's a lot going on to pay attention to. >> this seems like a lot of sabr rattling. we did see a lot of weakness in asset prices over there in india and the pakistan main benchmark index. you are also seeing rebounds and the rupee. -- you arehe ruby

also seeing rebounds in the rupee. you see pakistan and india reaching out to foreign nations for some help. there may be some sense that they realize this cannot go much further than it already has. alix: theresa may speaking in parliament right now, saying she worried about the tensions there. here's what he had to say yesterday to the senate banking committee. >> you've seen a significant slowing in growth over the past year and a half. we have seen some crosscurrents and conflicting signals. financial markets have become more volatile toward your end -- year end. we still see muted inflation pressures and that gives us the ability to be patient with monetary policy. this is a good time to be patient and watch and wait and

see how the situation evolves. alix: what did we learn? michael: the market reaction was telling something i didn't know already. the fed has put a lot of that in their statement. the minutes tell us the same thing. because of what's going on around the world, the u.s. economy is on hold. what might be interesting today is at the house gets into the green new deal. alexandria ocasio-cortez is on that committee. she is the sponsor of the bill. is centerpiece of the bill the fed pays for this thing, we issue green bonds in the fed buys them and puts them on their balance sheet. the fed thinks that's a terrible idea. david: that would be an interesting conflict. one thing that came out of the testimony yesterday was chair

powell saying we have a real physical problem -- fiscal problem, we are borrowing more than gdp. seeing: you are still appetite in the market for -- you'veonds had the bond vigilantes sitting on the sideline. they are looking at the fed put the equities got. 2.8 right now is not enough to compensate us. if we do get to a point where the fed has to react to that, you will see a lot more volatility. david: you see senator after senator saying i'm worried about the debt. i will can criticize all he wants, but nothing's going to happen in the short run can criticize all he

wants, but nothing's going to happen in the short run. david: maybe he's concerned about the markets more than his predecessors have been. michael: this is a case of message sending by the chairman. the markets have the power to interrupt the economy. you use the opportunity to say this is what we are going to do. alix: we are showing live pictures of president trump sitting down to dinner with kim jong-un. a pretty loving press conference right before this, both of them back,g each other on the trump saying kim's relationship is a good one, looking forward to helping the economic potential that is north korea. each one is joined by two of their aides. mike pompeo and mick mulvaney attending with trump.

joined byn being two of his colleagues, one said to be the head of the spy agency. alix: let's listen in. will monitor the headlines that do come out. david: this is a metropolitan hotel. he owns a hotel built in vietnam. they had a bomb shelter during the vietnam war. michael: i've stayed there. david: yet another famous person to stay there. michael: it is remarkable, though. theee live pictures of leader of north korea sitting down with the president of the united states. he is on tv live in the west. alix: and chatting and hanging

out. >> this is a milestone, no matter what comes out of it. this is a milestone for north korea. david: in hanoi. where john mccain was kept prisoner. best buy earnings came out. best buy has beaten across the board. the earnings-per-share, their projection for first quarter, their comp store sales -- in the premarket, they are up almost 10%. a retail learning beating across the board -- earning beating across the board. they are shifting to services. >> invested a lot of money and a shifting to the employees in their

there, and he's been rewarded for it. to operate this business is a lot lower that are -- the costs to operate this business are a lot lower. efforthere last-ditch and now, they're coming back -- effort, andditch now, they are coming back. >> the retail apocalypse across the board, that narrative is dead. it's how they are investing in their business to adapt to these changes. best buy has won this. david: some of that investment is in people. we will get office depot later. it's more expensive, they have

to haveigher wages these people come to your house and fix your computer. michael: i saw an ad on , advertising for people to come work t for them. --s is good for gdp tomorrow the retail sales numbers were awful. .8%.ronic sales were down it is the personal consumption, the services of spending, that is the peace we don't know about -- piece we don't know about. alix: thank you very much. we are also paying attention to what's happening in the u.k. the prime minister continuing to speak. , she said she's worried

--ut those tensions parliament has to approve to vote on march 12. will they approve a no brexit deal? seen so manyever votes taken with so little decided. there is a vote every week and nothing gets resolved. alix: it doesn't matter because the cable rate is at its highest level since june of 2018. it looks like they don't go outsidemerity to of the agreement -- who can blame them? there's jeremy corbyn, the leader of the opposition. he said maybe it's time to do a new referendum. more on theg up,

india-pakistan clash. this is bloomberg. ♪

david: president trump is in hanoi to deal with north korea. overnight, the big geopolitical story was the escalating tensions between india and pakistan. -- he's theob doll new lead to portfolio manager. nick is over there with the secretary of state and the president. tot is the u.s. reaction india and pakistan? >> so far, secretary pompeo has

spoken with both sides. he has urged calm. hea statement earlier today, made explicit that the u.s. is siding with india on this one. india is a burgeoning strategic partner of the united states. president trump has distanced himself from pakistan because of what the u.s. sees as its refusal to clampdown on terrorism. it was a pretty strong signal from secretary pompeo. he is urging both sides to de-escalate tension. obviously, a lot of anxiety given that both of these countries have nuclear weapons and are in the middle of a crisis. david: is that something of a divergence from u.s. policy in the past? tothe past, u.s. has tried play a neutral middle position. if we are deciding to side with

india, what does that do in terms of resolving the situation? >> that is a great question. a lot of the concern stems from to president's decision really push them further away from pakistan. idea that this would embolden india and reduce the u.s. impact as an honest broker between the two sides. and had been able to use its position to ease tensions. there is concern here that that is an outgrowth of that. before indone this terrorist killing 40 indian soldiers.

the u.s. tried to maintain that honest broker role. not feel pakistan does they have neutral support from the united states, how do they respond? turn if he doesn't feel he can rely upon the united states? >> that is a great question. in the past, he's been able to turn to china. pakistan has an economic partnership with china. both sides do seem to want an offramp but don't know how to get there. it seems a bit too early for that. the u.s. calling for them to de-escalate. there is some hope that that call and the u.s. playing that

broker role will allow both sides to do that given that neither of them want a full-blown war. cashmere is such a terrible hotspot. alix: thank you for joining us. how should an investor be looking at something like india and pakistan? the geopolitical risk is impossible to hedge. >> it is impossible to hedge. this is a hotspot that every once in a while boils over. these are two important countries. that's why futures have been sloppy over the last 24 hours. that sloppiness will continue. you can't have escalation there without the world standing up and being concerned. alix: if china was the growth engine, the rhetoric is india will be the growth engine over the next few decades.

then we have something like this that can put a halt to that. that is a material risk for companies and ceos and investors across the board. gdphatever you thought would be over the next few years, you have to lower the number a bit. even if this does not heat up, it reminds you of the risk. foreign exchange volatility is going down. it is heading down. >> all volatility heading down. markets for a whole lot of reasons are little riskier. you also get more growth. hold your nose, buckle your seatbelt. you still have to be in the emerging markets. alix: is the dollar a safe haven or not? >> and shirley still is.

is.t surely still alix: still a safe haven. >> we are the reserve currency of the world. that is a big vote for us being the safe haven. the u.s. is the largest economy in the world. we have a good resource space. we arenot perfect, but more perfect than lots of other places. david: are we overestimating the differences globally? >> i don't think so. think about all the mild hotspots -- mild and hotspots around the world. , 20% focused on the fed and the trade thing -- they are there. alix: it does raise the question as to what is the next catalyst. you take out trade being a

headwind. are we at the top here? >> the fed is going to raise rates every meeting for the rest of our lifetime. i look out the window and i see a recession. fast forward to today, the fed will never raise rates again, we will get a trade deal in a few days, no recession to be seen. the truth is somewhere in the middle. david: talk about that trade deal. there are reports out now that the president wants this deal so badly, we may not get everything he promised. if that happens, if it's not a great trade deal, is that good for the markets. >> it is good for the markets but not as great. if it is a hollow deal, the markets go, oh, come on now.

xisident trump and president both desperately need a deal. they will sign whatever comes across their desk. david: we will turn to germany now. the bundesbank issued its report on the german economy an hour ago, saying german economic growth is sluggish and expected to be below the potential for all of 2019. we welcome the bundesbank president -- thank you for joining us today. >> you're welcome. david: the report says at the turn of the year, the growth was sluggish. a lot of concern about the german economy. you said we should look through that and not be concerned through the medium term. we heard mr. powell. he's very concerned about worldwide growth. is he overly concerned? ofi said we are in the midst

revising our forecast. what we've seen in the past is a slowdown of growth starting around the second half of last year. this is more protracted than we initially thought. factors --to global idiosyncratic factors that are specific to germany and related to the automotive industry. , the key factors driving growth and germany are still intact, chief financing conditions for one, but also the dynamic wage growth. david: when you talk about the trade issues with respect to germany, you are such a significant exporting country,

how much of that is external to the european union and how much is internal? internally within the european area, traders down. is that correct? -- trade is down. is that correct? >> they are currently surrounded by a higher degree of uncertainty. that is related to the looming trade conflicts. course, there is tightness related to the eu. this looming trade thelict, which is affecting open germany economy more than others. we see a probable effect on investment.

alix: under what conditions tell flows?pport the currentxtent economic data are affecting the medium-term inflation outlook -- if the answer is yes, we have to which instrument to respond -- that's one element of this discussion. is the effecthere on the medium-term inflation outlook. alix: part of the issue is wages have been going up. yet, the breakevens and the inflation expectations have not. if you cannot resolve that, do monetaryto go to policy?

and all of our forecasts -- we are in the process of revising them. the baseline scenario was one of domestic price pressure that was picking up over the projection horizon. this is still the most likely scenario. in those countries where the labor market is strong, households growing stronger. comparisons,cal which growth is strong. you see the comparison of wages to the cyclical situation and a high-capacity -- this is the first step in the transmission process. david: you talked about the uncertainty because of trade. what about with respect to rates? we've heard mario draghi say

they will not be raising before the end of the summer. there's a lot of thought in the marketplace that may be september -- would that be guidanceo give clear for when we expect rates to go up? >> the forward guidance is working as it should. the markets have already reacted to the softening economic data buys postponing -- by postponing their expectations for lift off. through theets that summer, we will not raise rates, or even longer if needed, and they understood the message. >> at this point, it probably is needed. it's probably not through the summer. it's even later than that. >> the market reaction is rather .lausible

they are reacting to economic data. david: jens weidmann from bundesbank. congratulations on the renewal of your term. alix: you have some geopolitical risk and some softness in equities. you have s&p futures off by four. the dax off by .5%. the cable rate really jumping again, up .4%, the highest level since june of 2018. there.ollar-yen it is modest. selling across the curve yesterday. crude flying after opec stands

up to president trump. the saudi's saying they will extend the deal. they are leaning towards extending the cut deal in the second half of this year. topbell soup beat on the and bottom line ended reaffirm their fiscal 2019 forecast -- and did reaffirm their fiscal 2019 forecast. there are definite structural things happening in both of those areas. david: they had some real challenges. i would have thought it would go the other way. for now, campbell soup is doing nicely. david: in terms of how they innovate, et cetera -- alix: in terms of how they innovate, et cetera. fighting between india and pakistan raising the possibility of a full-blown war.

pakistan saying it has shot down two indian jets and captured the pilots. india said it shut down a pakistani warplane after it airspace inian the kashmir region. lawyertrump's former plans to call the president a racist, a con man and a cheap. he says the president knew roger stone was communicating with wikileaks about stolen democratic party emails. white house trade negotiator robert lighthizer will be in a tough spot today. he will be testifying about a potential trade deal with china before u.s. house committee. president now has backed off the threat of tariffs. there's concern he will end up with a weaker agreement.

global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. hearingt's interesting about the suppose adrift between trumpizer and president being tough on china -- president trump saying we have a national security issue with china. this is what he had to say. >> the chinese also don't necessarily regard to the distinction between commerce and government or commerce and security as we do. elementw commerce as an of a toolbox you can use to achieve parity and maybe even dominance. that shouldn't surprise us. go back hundreds of years, the west used commerce as a geopolitical tool to advance itself.

theere playing checkers, chinese were playing go. we have to change our game to match them. david: you can watch the full conversation on bloomberg "big decisions" tonight. alix: that's interesting, the dynamic between the economic and geopolitical. if you have russia and china supporting this, what does that mean for the backdoor talks with trade? david: we want them to get rid of the nuclear weapons. president trump saying we will in yourse sanctions off economy will start thriving. global growth is looking up from here. the global economy may have already bottomed out.

emerging, shoots are suggesting sequential growth will pick up. ask jamie dimon and it's another story. >> we are prepared for a recession. i saw one of the things that came across the tape saying jp morgan is preparing for a recession. we are not predicting a recession. we are pointing out that we are very conscious about the risks. alix: still with us, bob dall of nuveen. whose side are you on? >> it is very confusing. to is slowing from three two. it doesn't mean everything slows to two. it is very confusing. u.s. and global growth will be slower this year than last year.

recession fears that were so prevalent around the turn of the year were overdone. slow down, but no recession. david: what puts the bottom -- will it be chinese stimulus? going to beis not as bad as we thought it would be? >> yes, yes, probably a few others, too. you will get some investment. not as much as the first half of last year, but good enough. alix: here's what jay powell had to say yesterday. >> we view current economic conditions as healthy and the economic outlook as favorable. we have seen some crosscurrents and conflicting signals. financial markets have become more volatile toward your end. best year and -- toward year end. alix: what do you by? -- buy? >> look at companies with free

cash flow. free cash flow becomes more valuable if real yields fall. you can move to a maturing stage of the cycle, you're looking for the end at some point, so by quality, but that free cash flow thats -- buy quality, but free cash flow shines. market saysquity it's great that interest rates are low -- it's because we don't think there's going to be a lot of growth. >> i agree, there is confusion between the two markets. one of them eventually will be right and the other will be wrong. my fear is the bond market is getting more right, stocks are on a bit of a sugar high. valuations aren't stretched, earnings are ok. david: please stay with us just a few minutes.

earnings season is drawing to a close. for a recap of those earnings, we turn to taylor riggs. taylor: best buy certainly doing more than good this morning. first quarter comp sales coming -- their next quarter earnings per share topping estimates of $.82. udc those shares rising in see those-- you do shares rising in premarket. recap where we are so far. you had 70% of companies on the bottom line, 60% beating on the top -- a lot of those from the health care companies. you also have industrials and utilities. getting a lot of topline beads

and the defense of encyclical beats in the defensive and cyclical sectors. alix: to pivot off of that, if you have earnings per share moving lower and a valuation expansion, how long does that last? >> if we continue, that's a problem. expectations were plus 7%. january 1, plus 7%, now -2%. the bulls say just wait. back half of the year will be good again. i think the truth is somewhere in the middle. i'm a little cautious on the market as we speak.

in the face of fundamentals that are not nearly as bad as we expected in the fourth quarter, but not perfect, either. david: tomorrow, we finally get those gdp numbers. impact.ace for >> exactly. that's right. around,ers, every turn get a little softer. alix: rbc saying this may be overcrowded. what do you do with that kind of sector that has good exposure? >> i would favor industrials a bit. they got crushed in the fourth quarter. a lot of it is just recovering where they lost it all in the fourth quarter. financials will be ok. where you get growth will be technology. david: why would they be ok given what we heard from chair powell yesterday?

-- they arengs learning to work with these low interest rates. the stocks reacted positively. that is a good sign. david: coming up, eiseman ups shorts,it increasing his wager against britain's banks. this is bloomberg. ♪

viviana: this is "bloomberg daybreak." coming up, an exclusive interview with michael eric

arougheti. investors are raising concerns about the dutch government's decision to buy a stake in klm -- the netherlands buying a 13% with, getting parity influential stockholders. saudi arabia may be on a collision course with president trump. they are leaning towards extending opec cuts through the second half of the year. president trump has been demanding the oil cartel keep prices down. oil minister says inventories in the u.s. are brimming. milk the don't drink way they used to -- the dairy company hired ever core group to

review alternatives, including a sale. that would include dean selling assets or forming a joint venture. david: we turn now to wall street beat. first of all, eiseman ups his brexit shorts. the money manager who famously forced the collapse of subprime mortgages -- norway bought the debt. the $1 trillion sovereign wealth fund. third, revenge of the stock pickers. active managers give passive funds run for their money. bob doll is still with us. let's start with the u.k.

this is an amazing quote from steve eisman. freakin clue." what are you thinking? bob: i'm not disagreeing with him when it comes to the u.k.. therefore, shorting banks there -- no one forced the banks there to recapitalize. i think it's a big difference between alpha on the balance sheets in the u.s. versus the u.k. david: how much comes out of this whole thing? this is deja vu all over again. she is tickling legally binding changes to the backstop -- seeking legally binding changes to the backstop. she says no deal is better than a bad deal. it appears parliament is on its

way to saying you can't go out with no deal. how alive is the possibility of a no deal brexit? bob: definitely a possibility. e is not out of the question. the u.k. needs europe and europe needs the u.k. they need to find a way to coexist and trade with each other. david: norway's biggest sovereign wealth fund has started buying equities -- and in december. bob: buying stocks at the end of the year has been a smart move. given who's doing the borrowing and what that means for their balance sheet, i'm not so sure.

so far, so good. flat.we spoke to bruce here's what he had to say. we invested $35 billion, we sold $12 billion. this year, i bet we may sell more than that. last year was a bigger year. we are more conservative then a few years ago. than a few years ago. bob: let's face it. we are in the 10th year of this economic cycle. we see signs of a maturing economy. maturing economies don't have fast growth rates. they have capacity issues here and there and then inflation problems.

alix: revenge of the stock pickers. more money into mutual funds and actively managed funds. will that sustain? are we finally out of the passive rut? bob: i love it. are going to, we get idiosyncratic place matter to the market -- plays matter to the market? bob: when yields are low and falling, companies at the margin are sustained in business. ratescan have more normal in the capitalist system working whereby not everyone should have access to money who doesn't deserve it -- shift how much of this into passive has been a direct result of what central banks have done? the tide is going to rise. bob: it's been huge.

it's all about the beta trade. just get me in. i don't need to worry about owning this and avoiding that. alix: what do you make of the treasury markets? the yields should fly in the face of the active manager picking. bob: a nominal number that is for point something and the treasury futures is still due 60 theour point something and treasury futures still do 60 -- it doesn't make sense. david: the money needs to go somewhere. bob: it is a safe bet as long as there's no inflation. if inflation pokes its head at rate, that'slation not very exciting, is it?

they will continue to slowly fall with bouts of higher volatility. but slowly but surely, correlations should fall. david: that's bob doll of nuveen. coming up, antitrust enforcers target technology. that's coming up next. this is bloomberg. ♪

david: antitrust and technology decided we will address this question -- and maybe catch up with the european union. they have set up a special task

force to focus on silicon valley. bruce hoffman says technology andets are rapidly evolving touched so many other sectors of the economy, raising distinct challenges for antitrust enforcement. two different camps on what this means. saying thisvalley is awful -- the people who want regulations say this is just a show. this is a way for them to not do anything. opposite reactions from the two sides. alix: i might agree with the latter, except for the fact that we've had your pushing ahead -- we'veissuing fines had europe pushing ahead with it , issuing fines. david: they specifically referred to instagram.

we need to go back and look at some of those deals and whether they should have been done. ed, not sure pass if they can undo it. they had a document at the time, the ftc wanted to stop that merger. person at facebook saying the reason we want to buy instagram is to eliminate a competitor. they seem to be looking at things like instagram,, going back in time. -- looking at things like instagram, going back in time. alix: this is bloomberg. ♪ you.

all of you. how you live, what you love. that's what inspired us to create america's most advanced internet. internet that puts you in charge. that protects what's important. it handles everything, and reaches everywhere.

this is beyond wifi, this is xfi. simple. easy. awesome. xfinity, the future of awesome. alix: india versus pakistan, the next geopolitical risk?

pakistan shoots down two indian aircraft. -- goldmandebate sachs says green shoots are coming and the global economy has bottomed out. best buy crushes that. comp sales beat, dividend gets a boost, shares flying higher. david: welcome to "bloomberg daybreak." i'm david westin, right here with alix steel. we've been watching all morning as president trump's meeting at a dinner with kim jong-un. they sat down for a little photo op. each of them having to of their close aides with them. alix: kim calling trump goodgeous, trump sang many things about his north korean counterpart. trump: this one will hopefully be equal or greater than the first.

we've made a lot of progress. the biggest progress was our relationship is really a good one. david: it sounds really good and warm. the question is what comes out of it. they came up with a statement that said a lot of nice things but had few specifics. will we get any specifics this time? alix: that's unusual. memos of understanding but no details. i see how that goes. in the market, it is a bit of a touch of risk off field today. -- feel today. you have the dollar-yen -- you would think you would see some safe haven bid into the end. gold is pretty much flat on the day as well. do wee 10 year yield, break below that? what does that mean about the

move to the downside? own, really ripping higher here. opec considering extending their cuts into the back half of 2019. said relax,ump guys, let's not cut too much. opec saying we will cut anyway. david: president trump is busy today. alix: you never note. this you never know -- you never know. he was tweeting about the: testimony -- the cohen testimony. david: president trump is in hanoi to deal with north korea. overnight, the big geopolitical story was the escalating tensions between india and pakistan. thank you for being with us. give us a sense from the -- the primee

minister singh let's talk about this -- saying let's talk about this. they have an indian pilot in custody after they shot the planes down. >> it remains to be seen. the big question is how india responds. the prime minister made a conciliatory speech earlier today. he called on the two sides to de-escalate. the fact that the pakistanis now have an indian pilot in their custody gives them some leverage. it may put pressure on india to relent a bit. india has been very tough on pakistan. there is election coming up in india. at this point, i find it hard to believe that india would be ready to de-escalate. i don't think we've seen the last of these fireworks on the

subcontinent, unfortunately. david: what are the pressure points for india and pakistan to de-escalate? we'veheard theresa may, heard from china saying please de-escalate. what are the pressure points? >> every country that matters has put public pressure on both sides to de-escalate. at the same time, i haven't heard any country, including friends of pakistan -- no one has come out and been critical of pakistan. many countries have come out and indicated their support for what india had done yesterday, carrying out this strike in pakistan. betweenants another war india and pakistan. quietly government will try to work the phones on both

sides to figure out how to start stepping back. daysuld have another few of tough talk and threats. does india make another move? if india were to somehow try to push back again and retaliate again, that could take things to another level. the fact that india does have one of its air force pilots and , they may be ady bit more cautious. david: thank you so very much. we turn now to washington and welcome patrick mchenry of north carolina, a ranking member of the house financial services committee. great to have you here. we want to talk to you about the testimony from chairman powell. before that, we have to ask for any reactions you might have to this escalating tension between india and pakistan. >> this is a historic conflict

that generations have contended with. the tension there is not new. how it flared up is new. it's a great concern to policymakers here in washington and a great concern to systemic risk globally. david: let's turn to the testimony of chairman jay powell. you will be asking him questions. what do you want to hear today that you didn't hear yesterday? >> we want to get another layer deeper. we have a great economy, very strong economy. facing to our are economy are global in nature. the china debt load is of concern, the weakening china economy, the weakening of the european economy, as well as concerns about an orderly brexit or a less orderly brexit, as

well as these global tensions we are seeing erupting further east. david: there's a limit to what the congress can do about some of this problem. one of the issues that came out yesterday was chairman powell 's concern about the u.s. that. -- u.s. debt. we are borrowing faster then we are -- than we are growing our gdp. >> what he said is commensurate with all fed chairs. debt and deficits do matter, they do have an impact on the economy. anyone who supposes they don't economic not a genuine thought -- that is something i've highlighted. the fact that he mentions health care as being one of the major drivers of our debt and deficit,

i agree with. getting back to the fundamentals, how do we get a more vibrant workforce, how do we get rising wages, how are those things embedded in the economy and happening as a result of regulatory relief and tax relief we provided? that's what i want to hear a layer deeper on as well. making sure people have the education and training they need to get the jobs being developed today. is congress willing to move forward on that? >> we have. three years ago, we passed a workforce development program. we have a variety of training programs focused on the next generation of jobs. that is happening.

we need to make sure we enhance that at the state and federal level. we need to get blue-collar folks environment.age david: something was covered in the prepared remarks yesterday -- the balance sheet. as we know from the minutes of the last meeting, they have been reducing it, but they expect sometime this year to stop that. do you have a point of view on how large that balance sheet should end up being? >> i think the balance sheet needs to be smaller. the intervention in our economy needs to be less. that is a broader conversation. the fed has a $4 trillion balance sheet. what chairman powell has outlined is the dating of these securities is the result --

results in a tapering of that balance sheet. we need a better understanding of the way forward for the longer term view if this is going to be in g generational issue -- a generational issue. avid: and perhaps philosophical issue as well. we are stop this year, talking maybe $3.5 trillion. i believe in the independence of the fed to make monetary policy. i want the balance sheet to be smaller. i think smaller is better than larger. that's my bias, but the federal our monetary policy setting board needs to make that decision.

very: you have said it's important to maintain the independence of the federal reserve. are you concerned about the pressure being put by president trump on this fed? >> every president has had opinions about monetary policy. since we created the federal president has lacked opinions about monetary policy as it affects their politics. the difference is president trump tweets it, he makes his thoughts known more broadly than fdr did. this is not new. it's just the circumstances of how the president communicates is new. knows theyay powell are independent, and they are acting with that independence in mind. david: we appreciate your time

today. alix: fdr did not have twitter. david: would have been a different world. investors' up, appetite for private credit. we will have an interview with gheti, coming up next. this is bloomberg. ♪

alix: we turn to the super return conference in berlin. we have an interview with managerarougheti, ares and cofounder. >> great to be with you. berlinuzzing here in

with everything going on in the world, what is the mood around here? michael: the mood is unbelievably positive. we've been to a conference where there is a distinct tone -- is this the best of times or the worst of times? generally, people feel really good. >> why is that? one, the u.s.r economy is unbelievably strong. people's portfolios are performing well. on the asset side is good. one thing we talked about this morning, growth generally in the private markets is now outpacing growth in the public markets for the first time in 20 years. despite whatever uncertainties exist, the secular trend into the private markets is maintaining. >> what do you think catalyze

that? michael: it was noticeable postcrisis. senses coming out of the financial crisis, most people realized they completely miss valued liquidity. they wentrealized into the market there was liquidity, but not what they expected. take is willingness to liquidity risk so long as you are getting paid for it. >> how competitive is it getting around theseople halls nipping at your heels? michael: i was first here for the private credit summit. i delivered a private credit

.ummit in a 10 by 10 room i thought it was the green room, but it turned out to be the main event. it, it is the full ballroom, has emerged as an asset class unto itself. more people are in it, competition increases, that is the natural evolution. thatot experiencing competition as compromising the return opportunity. a lot of the people who are allocating tend to be smaller, first time funds. appetiteill a hearty for this specific type of asset? michael: appetite coming out of the financial crisis and global appetite for yield. when you look at real estate lending, the opportunity to

is very current yields attractive to investors. >> how much do you worry about interest rates rising? michael: i worry if they are rising for the wrong reasons. go up because the economy is fundamentally sound -- generally, when interest rates go up, i'll returns go up -- our returns go up. fast,y go up too much too it restrains cash flow. >> biggest worry for 2019 going forward? so much deale's political uncertainty and geopolitical uncertainty and movement. was a greatal shock

reminder that the markets are still a little fragile under the surface. i can't point to anything specifically, but there's still enough risk. >> you mentioned the end of 2018, that was a big shock. it seems like so long ago now. are we due for another one? michael: i hope so. it was a bit of an appetizer. those in the markets where ares performs the best -- those are the markets where ares performs the best. can come in and be a liquidity provider. it was an enjoyable couple of months. >> we could use a little more volatility? michael: i wouldn't mind. >> great to catch up with you in berlin. david: that's our own executive editor with michael arougheti

over in brussels -- berlin. coming up, best buy's blowout earnings. a bright spot in an otherwise gloomy retail earnings season. this is bloomberg. ♪

david: home improvement retail earnings are out this morning. taylor riggs is looking at the health of the consumer and retail overall. lowe's, theing at home improvement store not able to get it done so far. of 1.7% missing estimates of 1.9%. this comes as home depot yesterday missed estimates as concerns thatsome u.s. consumers think putting money into the home market may not pay off for them. is seeing theat

health of the consumer is best buy. now approaching the -- theysince december were able to post a strong holiday quarter and take advantage of the toys "r" us closings by adding toys to their shelves. on this able to pass higher input costs to consumers. we are expecting tj maxx earnings within the next hour. profit margins will be a big focus after walmart shows they are spending a lot to compete with amazon. macy's also unveiling a fresh round of cost cuts. alix: thank you, taylor riggs. time for bottom line. here to discuss is mike liss.

what do you like and retail? -- in retail? mike: we like tapestry and ralph lauren. right now, we are seeing better opportunities in other sectors. we like the energy sector and financials in particular. these are stocks that have gotten beaten up pretty good. sectorsre there some doing better than others -- we talked about best buy, they did well. that's related to services. mike: they need to make that shift. the whole retail world is getting turned upside down by amazon. companies like best buy are doing a better job of making that shift. the reason we like tapestry and ralph lauren, they are doing a good job of making that shift. i have a strong brand as well.

-- they have a strong brand as well. the consumer slow down into the end of 2018 -- you would, too, with the government slowdown. we think the consumer confidence numbers are starting to come up. roads a pothole on the instead of heading to lower growth there. their comp sales, wow -- becoming more idiosyncratic. versus the retail play, is that a value call or a call on the consumer spending world? mike: we're looking at it as a bottom up and set up top-down -- instead of top-down -- we are looking at cheaper stocks, the stocks that still have good return on capital, they have

higher barriers to entry -- we are not making a call on the consumer. on, iut my macro hat don't think the consumer is falling apart. unemployment continues to be low. sudden, think all of a companies. hiring. -- companies will stop hiring. alix: t.j. maxx crushing it, boosting their dividend and issuing a buyback. this is bloomberg. ♪

alix: a little bit of risk off this morning. best buy storing in premarket trade tjx weaker after their outlook comes in light on the top end. dax off by half a percent.

in other asset classes, sterling continues to fly. goety trades used to unnoticed. crude flying higher on saudi arabia's continuing to extend those cuts. we have data dropping. retail inventory of .9% in december. the trade balance when you take a look at goods is widening to -- -$80lion could the billion. david: the trade balance is worsening. replenishing inventories can be good for gdp. that means they are ordering more and the factories wind up having to produce more.

we've been expecting a boost for inventories for gdp for a while but have not seen that. there a negative to rising inventories which means less demand. david: that it is a good thing because wholesale inventories have come in up 1.1%. you should be happy. alix: we are finally getting that inventory payback. joining us is lara rams, and mike liss is still with us. take us into the numbers. >> that question about inventory was pertinent. how do we interpret that? i liken it to the throb -- to the froth on beer. alix: i think we lost your microphone. david: we actually want to hear you. alix: for the broader overall economy, mike, are we in a good spot or not?

mike: i think there is a disconnect. growth will bep in the 2% to 3% range this year. had winds coming in with autos starting to roll over and housing starting to roll over. just getting back to trendlines on housing. unlike the last cycle we do not have an overshoot through trend lines so we do not think we will get an overshoot on the downside. prices adjust downward, but once prices announced -- adjust downward, we think you will see the housing market stabilize. on the positive side you have domestic economies continuing to do well. is going tot capx be up in the low to mid single digits again this year because companies want to keep unit labor costs under control. to do that they need to spend. capx is 13% of gdp.

housing is still important but only 4%. pmi's,u look at the which have come off of highs, they were unsustainable levels, we think they are at more sustainable levels and still point to economic growth. we think the economy in the u.s. is to going to grow in a 2% to 3% range. david: we have her microphone fixed. s thatswer about economic involves beer i want to hear. >> i was liking it to the froth on beer. it gives you the volume but it is not the good stuff. the investment spending, the consumption, the housing investment. i think the inventory numbers could give us a boost to q4 gdp. it is interesting to see how that will play out.

we're excited to see that number tomorrow. it has been a long time coming. david: what happened to capx? it shut up and went down again. shot up and went down again. >> i think we are still having to wash out some of the uncertainty relating to the volatility we saw december, the shutdown in january. it is frustrating to be patient but we will have to wait until february or march to see whether or not the decline in some of the sentiment indices has tripled over into spending decisions. alix: like the trade deficit, that will be for december and stockpiling ahead of tariffs. if you're looking at 2% to 3% economy, what stocks to like in that? mike: we are looking at it from the bottom up. -- resentingbest

themselves in the energy sector. alix: are these large-cap guys? smaller players? mike: we think it is in the mid-to large caps guys. energy, the stocks have gotten hammered pretty well. we think that while the quality is not the highest quality sector, we are focusing on the highest quality companies within that sector and we think we have identified good risk reward for our client. you listen to analysis like that, how much does where we are the cycle factor in. everyone seems to think we are late in the cycle. how does that inform what might be going on? >> there are two important factors. one as -- one is as we enter this more classic late cycle economy we are seeing costs being squeezed. it is not that we will have an earnings recession but it will

not come as easily as it has over the past five years. i think the other factor we continue to discount is this big slow down from abroad that we still do not understand. the european central they do not quite understand why germany's numbers have big so negative. a lot of big international company sales come from abroad. it heightens the uncertainty. i think it adds a layer of caution to what would otherwise be positive earnings. you aremost like watching jay powell's testimony. >> while we view current economic conditions as healthy and economic conditions as a verbal, we have seen crosscurrents and conflicting signals. financial markets have become more volatile and financial

conditions are now less supportive of growth than they were earlier last year. today,he house committee where do we expect jay powell to end on inflation? do we think more inflation for more hikes or the status quo does not get worse or more hikes. lara: i am still in the camp that we get one to two more hikes this year. that is to say we get inflation still around 2%. the fed has signaled that they are prepared to be patient given the inflation data. in the end, you are splitting hairs. if they do not raise it all, if they raise two times, you're still talking about them wanting down an interest rate cycle at the lowest rates we have seen historically. it is a lower rate environment. -- mike, youaid

said you were bottom-up value. you want them to keep rates low. on the other hand, when the rates to up you short out the sheep from the goats and you want the sheep. alix: i was going to say which is bad? david: i think sheep is the bad one and goats are the good one. mike: i understand what he was saying. do i want rates to go up or down? i don't know. i have seen it being difficult when rates go up and now when they start to retreat it has been top. here is what i know. i think we have identified very good companies that can do well whether rates are high or low or in between. we are focusing on quality. a lot of the companies we focus on, particularly the banks and the energy companies, we think they will do well as long as

there is at least moderate economic growth. in the banks we like u.s. bank and in energy we like devon energy. alix: that is interesting. david: he likes his energy. mike liss of american century and lara rhame will be sticking with us. we turned back to hanoi, vietnam where president trump is dining .ith kim jong-un bloomberg's chief international correspondent for southeast asia is there with us. what you have to report? >> we are still waiting for that dinner to conclude. we know the leaders had a one-on-one discussion that lasted 30 minutes. if the music behind me is anything to go by, they are pretty upbeat. we heard this meeting will be equal or better to the one that happened in singapore eight months ago. concerned, hep is is still looking for a complete

denuclearization of pyongyang but is not insisting on a complete denuclearization that is irreversible. on the part of kim jong-un, he wants action for action. anything he does to reduce his capability in terms -- his nuclear capability, he wants it to be met by some kind of easing on the part of those sanctions hurting his country. we know north korea requires everything from laptop to energy and the sanctions are also being observed by china, that is putting a lift on growth in the country, a country that has been suffering for a long time. we are waiting for the dinner to be concluded to find out what transpired. before the meeting, they said everything is on the table. david: thank you very much from a beautiful evening in hanoi. , the face-offp

between the world's biggest drugmakers and lawmakers. we will discuss efforts to rein in drug prices. this is bloomberg. ♪

viviana: this is bloomberg daybreak. coming up later on bloomberg interviewn exclusive with the elite carlo group co-ceo. this is "bloomberg daybreak." the new ceo at general electric wants to know he knows how tough it has been in has a plan to turn it around. in his first letter to shareholders, he says cutting debt will cut -- will come first

in an overhaul. he highlighted that priority with a deal to sell ge's biofarma business for more than $21 billion. investors are raising concern about the decision to buy a netherlands- the buying a 13% stake. this is a move in gaining parity with influential stockholder france but there are words competing national interest will delay attempts to streamline the company. elon musk tweeting again a day after his tweet got him in more trouble with regulators. the billionaire founder of tesla was back on the keyboard. -- thursday, 2:00, then california, and finally "some tesla news." a judge asked a court to hold mosque in contempt for violating an agreement -- to hold elon musk in contempt.

-- that is your bloomberg business flash. david: time for follow the lead. a deep dive into the stories making headlines and moving markets with key insights from industry veterans. today we are looking at chart costs and the potential to rein in rising drug prices. top executives from the world's largest pharma companies testified tuesday and here's some of what they had to say. >> the system is built on high list prices coupled with rebates. this is not sustainable and all of us have a role to play. patient'sgnize out-of-pocket costs continue to increase. we believe it is possible to work together to realign incentives to make sure patients can afford medicine without stifling scientific innovation. >> while our overall price decreased, patients have seen their out-of-pocket costs go up.

one reason is increased enrollment and health plans that require patience to pay more -- that require patients to pay more for their prescription. >> our industry has a duty to be responsible -- the horribly misaligned incentives within our health care system often makes medicines unaffordable for american patients. we need to fix this. >> addressing these prices will not be sufficient to solve the problem of patients' out-of-pocket costs. >> there is no one solution to this problem. --are committed to working how we can better partner to address pharmaceutical access. david: still with us is lara rhame and mike liss. american century has substantial investments in pharma. drug company ceos saying it is outrageous how much things cost,

look at all the people to blame. it is the blame of insurance companies, the benefit managers, it is not our fault. they are setting the prices, aren't they? mike: it is amazing to listen to the ceos shifting blame to the pdms. , pole to listen to the politicians question them, not having a deep understanding -- it is almost comical to listen to the politicians question them , not having a deep understanding. allents to the pdm, almost of them go through the insurance companies. they are supposed to make their way into the rates and supposed to be lower rates for the policyholders. we do not know if they actually make it through because they are so transparent. david: as an investor in some of these companies, are you concerned that this will come home to roost? someone will call foul on this and it will affect the pricing mechanism. mike: we've been having this

debate for the last 20 years i've been analyzing the industry . it goes back and forth and round and round. we want to blame the pharmaceutical companies. there are definitely been bad actors out there. on the whole, drug prices have stopped going up as much as they did in the last five or 10 years. those prices are starting to be reined in. we have a lot of pressure from generics and they will continue to put pressure when patents are up on drugs. root of to get to the the system. you can price year but you cannot price internationally. all the innovation takes place here. you want prices to be lower. when you going to come up with the next cure for cancer? when you going to come up with the next cure for ms? what is going to come up with a cure for alzheimer's? alix: this harkens back to the buyback conversation in

washington a couple years ago. trying to force companies what to do with their cash. lara: there is so many issues at play. a factor near and dear to everybody's heart because somebody we love are facing these prices. it is also something that demographically is going to have to be addressed at some point. 10 years from now, when the baby boomer population is so much more percentage of our economy and we are facing these large government deficits, i think to mike's point it has something we've been talking about. these tectonic plates are coming close to hitting each other. it is like the financial crisis -- we needed something big to happen before regulation came in and then regulation was too heavy-handed. we would like to have some positive momentum toward compromise on this issue before something happens that forces heavy-handed regulation and his

investment. david: i want to push on one point, the connection to research and development. that is the reason we spent so much money to get these great drugs we all want desperately. i'm not sure that connection is so direct. bloomberg has done a study about the composition of ceos for drug companies, and there's no correlation with how much money they're making from their companies and their red -- and their r&d, which suggests the market is not rewarding ceos for investing in r&d. mike: i'm not saying ceos and executives might not be overpaid. that is not the point. the point is if you do not have good returns on capital in the business incentivized by strong pricing, you will never create the next cure for leukemia or lung cancer. the current immunotherapy drugs we have would not have come up to cure certain types of lung cancer and melanoma if you do

not have that good pricing mechanism. i want everybody to have access to those drugs. we need to find a way for people who cannot afford it. pressure needs to be put on companies to be able to give those drugs to people who cannot afford it. i do not want to come off on being a cold heartless jerk. if you do not have good returns on capital, you are not going to have investment and you are not going to have those next generation of drugs that may be cures brain cancer or pancreatic cancer. alzheimer's disease. if you do not have some kind of good pricing, strong pricing, reasonable pricing, you will not have the next generation of good drug cures. david: i never thought you were cold or heartless. that is mike liss of american and lara rhame of fs investments.

thank you both for being here. alix: a silver lining to retails gloomy earnings season. best buy. this is bloomberg. ♪

alix: here is what i am watching. retail earnings. that comes down to best buy. shares jumping. positive outlook for 2019. you've been monitoring -- what is your big takeaway? >> best buy sounds good. they're executing very well and had a very good fourth-quarter. came in better than expected in terms of their overall results. they have a strong management team. that is something we get reminded of every time we speak with a management team or hear them speak on the conference calls that their ability to execute and give good guidance going forward has been helpful to financial analysts.

you are seeing the results they just put up in the guidance going forward is better than what all of us were thinking. we should see the stock pop up a little bit this morning. alix: pop up an understatement. it is up by almost 12% three market. i remember the takeover, there was a huge transformation in best buy. we always wrote them off as dead. what other companies are in a shift and we just need to be patient for it to be delivered? a uniquee in such situation because it is a commodity oriented business. people left them for dead given the amazon effect. barnes & noble has had fits and starts where there has been a resurgence. we know there is this grassroots resurgence among local bookstores. people liking or enjoying the experience of going into a bookstore rather than ordering online. not suggesting they will be like best buy, but that is an area

where you have seen it. other companies have been able to transform and do some things. walmart has transformed itself into a digital retailer to compete more effectively with amazon. they are another one where transformation has helped a lot. alix: joe, appreciate you talking us through best buy. a $67 price target. we will probably open right at that level. david: the main thing and retail is divergence. alix: etf flows are moderating. it is about active stock ticking. bloomberg markets the open is coming up with jonathan ferro. this is bloomberg. ♪

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

focus. pakistan downing indian jets in the worst escalation in decades. president trump meeting kim jong-un in hanoi for a second summit and in washington chairman powell preparing for day to of his testimony. from new york city, good morning. futures down six points on the s&p 500. off about .25%. euro-dollar stable and treasuries a little bit softer. 2.65 on the u.s. 10 year. chairman powell during up for day two on capitol hill after sailing through day one. >> i think the fed is doing the right thing. >> he painted a goldilocks environment. >> i view the hearing is something of a missed opportunity. >> we had a big shift in the fed guidance a