violent protests shake iran. the country admits to shooting down a civilian aircraft. unrest spreads in the middle east. big banks kick off earnings season this week in the middle of a liquidity driven rally from the fed. where will the market find direction next? in the risk and reward of private credit. we speak about direct lending. welcome to "bloomberg daybreak" on this monday, january 13. i'm alix steel. you are seeing a little bit of selling in the bond market. jp morgan had a note friday saying basically, it is time to sort the 30 year in the u.s. the dow is near a record. the s&p was softer friday after the mixed jobs report. time now for global exchange, where we bring you to these -- we bring you today's market moving news from around the world. our bloomberg voices are on the ground with this morning's top

stories. we begin with the elections in taiwan. the president won a landslide majority, seen as a rejection of beijing's push for one country, two systems. joining me from taipei is stephen engle. walk us through the significance of the vote over the weekend. stephen: it was quite significant. now that she has that landslide victory and the mandate for another four years, there's three big questions. how will china handle another four years of a thorn in their side, the policies of taiwan and her pro-independence minded policies that really resonated with the electorate? more than 8 million votes, a record here in taiwan. the hong kong protests really resonated with the electorate, of ahat led to a rebuffing push for closer economic ties.

the question is what is the future of the opposition party that got routed? they've lost four of the last six presidential elections, and they need a you voice for the longer eat -- for the younger electorate. finally, the economy. tot also propelled tsai victory. can it continue? it is hinged on the global economy, as well as manufacturing to taiwan. alix: thank you so much. now we go to the middle east, where protests turned violent in iran as students gathered after a second night after the government admitted it mistakenly downed a passenger jet. the admission triggering global outrage and internal dissent. mistake, and a number of our compatriots were

murdered because of our mistake, but it was unintentional. we apologize. we are sorry. but we will make up for it. we will not allow any of our people to get hurt. but we do not sit down or kneel. alix:alix: joining us from dubai is bloomberg's executive editor for the middle east. this is a shifting tone from iran just a few days ago. reporter: that's exactly right. they've gone from this rate show of unity and sadness over the killing of soleimani and anger over the killing of the general to now, basically the government trying to manage the fallout from this tragedy, the inadvertent shooting down of the airliner. so you have iranian officials coming out more and more, even hard-liners in the government, expressing remorse, saying they are sorry for what happened, and that they are assuring people

that they are going to make up for it, make sure that it doesn't happen again. there are some in the regime and the hardline media that are still trying to put the blame on the u.s. for the environment the u.s. created with the conflict but will beago, demonstrations now go into a third night after the last two nights, which turned in part violent? will this anger inside around now aboutide iran what happened to into something bigger? alix: thank you. aramcosser, the saudi ceo, spoke for the first time since the ipo, saying he is bullish for 2020. >> with the demand we are seeing

and with the slow that is expected in shale oil compared to previous years, i think we about.itive, bullish the future alix: -- about the future. alix: joining me from london is will kennedy. shocker that the saudi aramco ceo is bullish about oil. what else did we learn from the forum? will: he's really taking a cue from what people were seeing in the oil market last year, the optimismin shale and about the global economy. to temper thatns optimism a little bit. we saw an oil spiked up after the assassination of soleimani that a lot of shale producers took the opportunity to hedge their production, so one clear risk people are worrying about is that she'll prediction turns out to be -- that shale

production turns out to be stronger than people expect. the second is the global economy. people are seeing with the trade deal set to be signed this week that growth will be robust, but people are hanging a lot of demand on that. , thef the people today xxon ceo, they are in guyana, this country in south america that is about to produce a lot of oil. alix: thank you so much. now we go to london, where the pound dropped following another member of the boe monetary policy committee pointing to a potential vote for interest rate cut this month. more is the bloomberg u.k. economy reporter. what did we learn today? reporter: it certainly won't be

boring when we get to mark carney's last meeting in charge of the boe at the end of this month. we've got various policy makers coming out. nineready had two of the voting for rate cuts. two more saying if the data does not improve, they will vote for rate cuts, and mark carney saying they have the space to cut if they need to and that he hears that argument, which is pretty strong from what we have heard at this point. they are looking at the data really carefully because that it was -- because that is what it really depends on. this morning's data was worse than anyone expected, actually a contraction in november. however, we've got inflation coming this week, retail sales, pmi's coming up next few weeks. so it is going to be a lot to look at before we get to that january 30 meeting. alix: thank you very much.

we turn to the latest on trade. china's vice premier liu he will lead a delegation to washington to sign the first phase of a trade deal with the u.s.. joining me from washington is shawn donnan. much fanfare headed into this wednesday signing. what else can we watch out for? shawn: i think we finally get the text of this agreement, 86 with they have negotiated china. the substance in those 86 pages is what we are going to be dissecting, what investors are looking to to see how much the u.s. managed to actually get after two years of tariffs and ground combat in economic terms with the chinese. the second thing we are looking for is any sign of a phase two coming. that will tackle some bigger issues, some bigger structural

issues in the chinese economy, but no sign yet that those negotiations are going to make any real progress this year. finally, there's always the question in anything involving the u.s. and china, and that is can this u.s. president get china to let of -- china to live up to its promises? that certainly has been the criticism from donald trump. alix: thank you the analysis. finally, we end with merger monday. excel,d will merge with creating one of the world's -- with heck cell -- with hexcel, creating one of the airspace technologies suppliers. here with more is brooke sutherland.

this is the latest in a long line of consolidation among aerospace and defense suppliers. you do have to think it will give them some pricing power down the road with boeing and airbus, which have historically been the ones pushing suppliers around when it comes to cost cuts. i would expect to see more consolidation in this space. alix: thank you very much for the analysis. one more story we are watching this morning. a volcano's eruption has forced mass evacuation in the philippines. more than 23,000 have now been evacuated, and there are plans to move up to 2000 more. the volcano is located south of manila, and forced the closure of the manila airport. financial markets have suspended trading. scientists worn the situation could get even worse. there have been scores of earthquakes, and that could signal yet another a wreps and is imminent -- another eruption is imminent. analysis of the

markets in today's first take. this is bloomberg. ♪

alix: time for the bloomberg first take. you get the trade and analysis of the markets. going may him a vincent cignarella, former fx and rates , andr, damian sassower david kelly, j.p. morgan asset management chief global strategist. i did want to start with the currency moves. members will see more looking for a cut. you also have the yuan hitting the lowest level in months. vence, what do you think? vincent: for cable, still has a

one in front of it. sell it. [laughter] nearnt: i don't like it 1.30%, and i think it has a lot of headwinds going forward. if you believe policy and rates differentials are the main drivers of currencies, clearly the prevailing wind is that the rate differential is going to be in favor of the u.s. going forward. if you look at economic growth, you really have to see the u.s. doing way better than the u.k., and we still have to deal with frexit. still notan union is doing as well as the u.s., so overall, you have to like to like the u.s. over the u.s. -- you have to like the u.s. over the u.k. and the eu. david: i generally agree with that. more optimistic on brexit because i think boris johnson really just wants to get a deal, and is quite fight civil

and how he gets that deal. but britain does have a huge current account deficit, and its economy is not doing well because of all of this uncertainty. that does put some downward pressure on sterling. i would say the idea of another interest rate cut, these lower interest rates around the world do nothing to help economic growth. they are just used as a currency war weapon, which is a zero-sum game at best, and really a negative sum game for the world because it adds to uncertainty. i hate to see interest-rate policy used in this way, but it tend to be concern. damian: a lot of the move i think has been positioning ahead. . of the lunar new year at 6.89, -- positioning ahead of the lunar new year. , and thethe 14 day rsi

dollar-yuan at a level many would consider to be overbought, i don't agree with that. as shawn was saying, we will see that the deal is with china wednesday. i thick a lot of this trade deal has been discounted in that it is better than a trade war. that if it is really that watered-down, if there really isn't that much in it and would the prospects on a phase ii deal really far out, well past what the election was likely will be, i think you see the best levels an going forward. alix: that's my point, it is really about the dollar. i didn't really want to talk about brexit. but i feel like at the end of the day, it has been a stronger dollar. is that really going to be the case this year? vincent: we talked about this

before, and i think we will actually see a real divergence ice dollar index and the bloomberg dollar index. the bloomberg takes into account many more emerging markets, and the ice index is predominantly a year or -- a euro index index. the ice dollar index will struggle with what happens in europe. we still have potential auto tariffs. they are on the back banner, but with this president, you never know. i agree with david, i think the u.k. will eventually find its footing going into the rest of this year, but it is still going to be tricky. david: longer-term come of the u.s. is still running a trade deficit. the key thing is that we are in this slow down, and it is going

to get worse. one thing completely ignored by the media is that last year saw the lowest immigration in at least 30 years. but the report out on december 30. feed au look into how to labor force, that is a real constraint. half of the jobs created, more than half in the last 12 months, -- werepeople who were by people over the age of 65. the global economy has been hurt by this manufacturing war. i don't think you get on out peace, but we are seeing more of a truce. i think that ultimately puts downward pressure on the u.s. dollar. i think that is where we are heading. damian: that is a great point. even though you get these

phenomenal wage numbers in the u.s., it is basically savings because everyone 65 and older are taking what money they have the future.it for in an environment where potential full employment, you would expect to see spending and consumption, you're not seeing it. david: both demand and supply are really challenged in the u.s. the pace of economic growth is slipping. i think u.s. growth is going to be about 2% in the year ahead. if the rest of the world picks put pressure also on the dollar. if you look at home sales, that is a good indication of confidence. good, you feeling will make that big-ticket purchase.

david: these are key cyclicals of the u.s. economy, and they are oppressed. -- they are depressed. alix: there was a great article on that and the inflation going nowhere this weekend. to your point, we have south korean exports up about 12% year on year. does it help build the narrative that things are going to get better outside the u.s. on the trade front? damian: absolutely. the high-frequency data out of south korea is positive. even over the first 10 days of january, you've seen south korean exports declined by 5.2% year on year. that is nothing compared to the declines we seen in recent months. things may be indeed getting better, the trade front, if we

do see some kind of respite on that side, some of the levels may be justified. leveled,f somebody is you just have to take stock of where we are. it comes to trade, if the market stumbles, i think the market is increasingly aware of the blowback they get from the u.s. businesses, so if the market stumbles at all, i think we get even less aggressive on trade. i think that is what phase i is about, saying we are now on the you can'tis, but really pursue that narrative if -- don't damian: and it is no coincidence you are seeing this at the same week we are going to see a phase i agreement. let's see what happens after

that agreement is signed. vincent: just a real quick note on iran, what is going on there right now will be very interesting to see what goes forward, how it affects .ommodity prices this is unprecedented for the public to be protesting against the ayatollah. to protest against the religious leader, this is summing that hasn't happened in 50 years. is something that hasn't happened in 50 years. watching aof protester not stepped on the israeli and u.s. flag is an incredible thing to watch. alix: thanks a lot. david kelly of jp morgan management will be sticking with me. for any charts we used throughout the show, go to gtv on your terminal. browse the features, check it out. this is bloomberg. ♪ ♪

viviana: you're watching "bloomberg daybreak." boeingr between two suppliers will create one of the world's biggest aerospace and defense suppliers. woodward will combine operations with hexyl for -- with hexcel billion. they said has nothing to do with problems relating to the grounding of the 737 max. goldman sachs is ramping up its presence in china. goldman plans to double its headcount there to 600 people over the next five years, provided china continues down the path of opening up its financial markets. for the third year in a row, ford sales in china dropping. last year, the automaker sold 68,000 vehicles. from 2018, that is a 26% drop. the couple he expects

china's auto market to keep shrinking. that is your bloomberg business flash. alix: thanks so much. also staying with the car companies in china, shares of electric carmakers dumped today. the government signals it won't continue reducing subsidies as they started to last july. this july, they may not do that. that it's very good news for the industry. ofyrs of new energy -- sales new energy vehicles have dropped since china re-specified hands out. up, big bank earnings kicking off tomorrow. more on those expectations ahead. will it be a liquidity or fundamentals driven rally in the market? this is bloomberg. ♪

♪ alix: this is "bloomberg daybreak." happy monday. here is what we are looking at in the markets. s&p futures a touch higher, as well as the dow jones futures,

right around a record high. a little bit of weakness in europe. if you switch of the board, you are seeing a tiny selloff in the bond market. the spread about 25 basis points after that frightened a flat in her -- after that friday -- friday flattener. big bank earnings throughout the week. we want to give you a look at expectations for the sector with bloomberg's sarah ponczek. : sarah roughly 25 --sarah: roughly 25 companies within the s&p 500 will report this week. it was last week that the financial sector finally took but you havehigh, to remember when ethan about the financials, it is not a just about the banks. in on they zero

banks, as you can see here, the banks are still relatively languishing. kew bank line is the index with 24 members. yellow is the s&p 500 financial industry group. what is actually expected for the banks when we start to get these reports? notable ishat is that banks are expected to decline less than the actual outlook. it wouldn't be that surprising if we end up getting a flat earnings quarter, or even a .light increase however, if you look at what is expected to come in 2020, the pace of recovery is not expected to be as strong as the entire

benchmark. we expect to see a second quarter of 2020, then we really .eek out at 10% many people are now talking about a rotation from growth to value, financials being a part of that. in the fourth quarter, as we did see bond yields start to increase just a bit, we did see the strongest quarter of outperformance for the kbw bank index versus the s&p 500 since back here in your 2016 presidential election. we will see if the banks beat their marks. also, if we start to see financial informants start to , because so far we haven't really seen it. alix: thank you very much. still with me is david kelly, j.p. morgan asset management. how are you looking at fundamentals versus liquidity? david: i think fundamentals will

be slowing going forward. i think if you look at the rally last year, it really was about liquidity because fundamentals didn't improve that much. it shows how volatile markets can be in the short run. longer-term, valuations become more important. valuations,inancial they have been cheap all the way through. i think that is really what has helped the financial markets underperform -- the financials underperform the market. if you think about the stability of those earnings streams, overall they were looking for low single-digit earnings in 2020. i think the analysts are a little too optimistic. i think we get low single-digit earnings growth, and that makes forard to build a case strong equity performance, particularly when you look at it over a number of years. alix: that brings me to multiples. if you come inside the

bloomberg, this is the forward 12 months pe versus just trailing. .ou're seeing a decrease here i guess the question is what changes this white line. a tariff rollback? david: it would be pretty tough. the big tax cut of 2017, that reduction in corporate tax rates was a very big deal for earnings. from this point, there's margin pressure. wages are going up. friday's jobs report i think was a little misleading. wages rising and growth slowing, that is not a great environment for growing earnings. boost if the a dollar were suddenly to fold and all of those foreign earnings are worth more. stay, iil in the dollar

think we will get low single-digit earnings growth in 2020. alix: where might be spent that is not pricing? -- where might capex be spent that is not priced in? david: i think if you are looking at a 2% economy, companies are going to be cautious. i think that is really the problem all along. this is not the kind of economy that generates exuberance when it comes to capital spending. alix: so do you by value -- do you buy value? david: i think you want to own value for the cycle. at some stage, we are not predicting a recession in 2020,

but over the next two years there will be recession, as we go from exuberant market to a market of despair at some stage. go up and down again, some sectors in growth will probably get hurt more than value. if you look through the boom and bust in a recovery, i think growth has been doing so well to this point. alix: it was more to highlight the point that if the fed continues to expand its balance liquidity being pumped in, and i have a great chart that has the fed balance sheet versus the s&p, and you can see how the two moved in tandem so far. . david: some of the people say, look at the money on the sidelines. ckle is the most fi thing to rest on.

the fact that there are others out there with more money you will buy stuff doesn't help the market. i don't think markets are nearly as expensive as they were in 2000 come about liquidity doesn't really big me feel that good about the markets. it is sugar. it's not protein. what you really need is sustained, long-term market improvement. what happens when we don't get the balance sheet expansion? what is the trickle-down? david: i don't think we see any fed move this year. the one linchpin on the entire ,lobal market of inflation this, i say, is a giant game of jenga. you have all these interest rates the don't make sense anywhere. it will always be the case that -- i don't think

the fed is going to do anything before the election come up at the set up right now justifies higher rates, not lower rates from federal reserve's, so we will see in the last meeting of the year whether the fed does something. alix: why would you be leaning more towards hiking rates, defect of not liking lower rates in europe? david: one of the great dangers in the long run, a coupon allows you to buy goods and services used by the economy. we have these amount of junk bonds out there that are owned by rich people who won't sell them. you give some of this wealth to people who are lower, and they will spend, and you do end up with inflation. i think it is unhealthy to

generate broad asset bubbles. the fed should not be trying to do this. i think they basically blinked in 2019 by cutting rates. i don't think they should have done that. beyond the presidential election, i think they might get back to getting this back at more long-term levels. takingtolerance for candid way -- for taking candy a two-year-old, but it is still what you do. alix: will the fed be able to tolerate a market in turmoil by hiking? damian: i think it is. you usually have to have something very bad that happens, and suddenly you end up with a push-up of 20% to kill inflation. we know this is the wrong long-term policy. .t is a bad idea

we need to normalize. when we have paid a price, i think it will be more tolerance for hardliners who are willing to be more disciplined. alix: does this make you like e.m. more or less? david: i like e.m. more right now. but with the global economy, i think picking up this year with manufacturing, i think it is going to get past it slump, particularly with trade tensions diminishing. in the long run, the dollar comes down. all of these suggest e.m. won't do better in terms of fundamentals. you're looking at over five tors, i would strongly want have overweight to e.m. relative

to other currencies over that period. good activeneed management because there are lots of potholes and opportunities. the certainty that there is room for both fiscal expansion and rate cuts, there's room for fiscal expansion in china, room for rate cuts and a number of other countries, those are positive. but i think they will be helped if the dollar versus. the problem with e.m. rate cuts is you don't want to do it when the dollar is rising in your own currency is falling. alix: always good to check up with you. david kelly, j.p. morgan asset management. now an update on what is making headlines outside the business world. viviana hurtado is here. viviana: in iran, protests over a shutdown down jet has turned violent. tear gas was fired at crowds over the weekend. a run leaders admitted the

-- iran leaders mistake the country's in shooting down a civilian jet. a volcano in the philippines has forced when he 5000 people from their homes. there have been scores of earthquakes, and that could eruption iser imminent. in taiwan, president tsai ing-wen was a landslide wintering yesterday's vote. she opposes reunification with china. global news 24 hours a day, on air and on quicktake by bloomberg, powered by more than 2700 journalists and analysts in more than 120 countries. i'm the vienna hurtado. this is bloomberg. . alix: thanks so much.

coming up, bitcoin enthusiasm. investor enthusiasm is building into the launch of the cme. that's in today's wall street beat. if you have a terminal, check out tv . you can watch us online, interact with us directly, scroll through, and check it out. this is bloomberg. ♪

viviana: you're watching "bloomberg daybreak." bloomberg has learned nissan is examining the possibility of breaking away from renault. since the ouster of former chief carlos ghosn, relation between the longtime partners turned dysfunctional. it is unclear how i separation would work. -- france isdo

renault's is largest shareholder. . canadian billionaire lawrence invest $60illing to martin.in aston amazon founder jeff bezos likely to face unprecedented protests this week on a trip to india. thousands of smalltime local retailers pledging to oppose amazon's pricing and exclusive selling practices. that is your bloomberg business flash. alix: thanks so much. we turn now to wall street beat to cover three things wall street is buzzing about. first outcome of machines reshaped wall street bonus culture. tech growing dominant forces traders to rethink what they know about bonuses.

interest builds per bitcoin options. david sees high anticipation ahead of the cme options launch today. joining bs and ali vasek. let's -- joining me is sonali basak. let's start with this story. he's mentioning something that everyone knew for some time, but nobody really wanted to meet the reality of. muchtrading is become very more commoditized. now that electronic occasion is taking a bigger part of the market, people at the forefront of ultrahigh -- of electronifying, you can see it continuing to do so for a very long time. alix: i wonder, does that bonus go to the coders, or just not at all? sonali: the people they are

attracting now or want to attract are not the people that came in with this want of great incentives, so now, he wants people who come and work at the team and believe in what the future of finance looks like in 10 years, which is a much more techy mentality. alix: it sounds like a little google, and it seems like a lot of tech people are getting really disillusioned with the amazons and googles of the world, too. like on walloked street, it is really hard to , andwho -- to pay people attracting those people are going to be hard. alix: let's get to big banks and their ambitions in china. go when taken they will hire about 600 people in five years. sonali: china is a great

opportunity, and another thing they want to do is plan a new asset management unit. regardless whether china goes through with all the plans to open up to the financial system, there have already been great strides for a lot of these banks . institutions, pensions, sovereign wealth funds, insurance companies companieso holy -- ready to deploy a lot of capital. goldman did a $5 billion fund with the china investment court in new york, to invest in u.s. manufacturing in the industry. that is even before china really opened up. so yes, is there a long way to go for china to open up their financial system to the big banks? yes, but the opportunity has already percentage itself of the people who really want to make it. alix: who wins? who is the most entrenched versus who could actually feel the market share?

sonali: it looks like the big asset managers have an opportunity and pulling in assets. asset management is a good space, but it looks like the hedge fund industry has a hard time picking off because the chinese hedge funds tendered of the market is better, are comfortable with a lot of swings . a lot of these broker-dealers alix: we are finally going to see a bitcoin launch on the cme. jp morgan says it is high anticipation. what do we think? sonali: i think there's been high anticipation for institutional adoption of bitcoin for a very long time. i used to cover it very heavily. it takes a long time because even though markets are opening

up, some of the financial concerns for big institutional investors, regulatory risk and what not come others are still problems. so until some of that is cleared up. bitcoin? what is j.p. morgan treats it as a commodity. they said they look at a downside risk after friday. there's a lot of institutional interest, but on the other hand, a lot of risks still there. alix: there's interest, but i feel that ceos reversed their position on bitcoin every three months. [laughter] sonali: yes they do, let's be honest. investment banks love it. they are aware that it is there .ecause there's a lot of risks alix: it will be fun to see how that pans out. sonali basak joining us. in today's off the beaten

street, a lonely japanese millionaire says, comply with me. -- says, come fly with me. he plans to fly to the moon on elon musk's rocket and ask someone to join him. women can apply to be his companion. "why not be the first woman to travel to the moon,, and the deadline to apply" -- to the moon?" the deadline to apply is friday. you should know he also whatssion some kind of -- am i looking for, democracy -- no, documentary about this as well. coming up, we are taking a look at wages in today's trader's take. if you are jumping into your car, tune into bloomberg -- turn into 119

bloomberg radio on sirius xm channel 119 and on the bloomberg business app. ♪ this is bloomberg. ♪

alix: time now for trader's take. joining me is vincent cignarella come a of the bloomberg audio squawk. you're taking a third look at the jobs number from friday. vincent: looking at wages. i'm not going to say i solved it. [laughter] alix: the man deserves a promotion. vincent: but if you look at the big stories, why aren't wages going up? the white line is the underemployed minus the employment rate, and that has been declining. that suggests people are entering the workforce and probably. . at lower paying levels. . at the same time, you see a drop in corporate profits. is another reason why wages have probably been stagnant. all of these are on a

three-month moving average to smooth the spikes. you see all this continuing to decline, which suggests wage growth will probably be muted in 2020 despite gains in certain lower-level areas i think what it says for us has markets is we probably see a relatively benign .ield curve if you want to play the rate differential space, you can see the trading on these, not on interest rate differentials. alix: thank you. coming up, barry knapp of ironsides partners. this is bloomberg. ♪

♪ alix: open to "bloomberg daybreak" on this monday,

january 13. here's everything you need to know at this hour. let's take it from the top. the beijing authorities understand that democratic taiwan and the democratically elected reseed to will not into the dacian. -- reseed to intimidation. anotherill china handle four years of a thorn in their side, the policies of taiwan and her pro-independent policies? alix: china called the results a fluke and blamed the west. a volcano is erecting 40 miles -- is erupting just 40 miles south of manila, forcing 25,000 from their homes. our number one priority is the safety and security of the families and communities

vulnerable to this natural disaster. protests in iran for a second night after iran admitted to shooting down a passenger jet last week. >> the government trying to manage the fallout from this tragedy, the shooting down of the airliner. you have the iranian officials coming out more and more, even hard-liners in the government, expressing remorse. alix: protesters called for a trial. >> there's a real enforcement provision, and if they don't comply with the agreement, the president retains the authority to put on tariffs. alix:alix: the chinese delegation heads to the u.s. to sign a trade deal. >> the key thing would get this week is the text of the agreement. 86 pages is what the inmost ration says they have negotiated with china. the substance in those 86 pages is what we are going to be

how much the see in. managed to put s&p as be futures -- alix: futures trying to grind hander. it's it about fundamentals or a liquidity driven rally? euro-dollar goes nowhere, but with the dollar overall, cable taking a hit. we are seeing a tiny bit of selling on the margins here. jp morgan had a note out saying that it is time to short the 30 year treasury bond. big banks are set to report, and here's where things stack up .oing in you're looking at a trailing estimate for the s&p, the forward one looking out a little bit of a decline.

putting these barry knapp, .ronsides managing partner great to see you. happy monday. as, i described you to barry deep guy.numbers, looks like the four straight quarters that we've had negative year-over-year numbers. that is obviously not great. the question is, is there anywhere we could surprise to the upside to get us out of that , and where is the expected growth that gets that down? tech and health care are the two. the really worrisome ones are .ndustrials and materials tos quarter not going have an impact.

once we move into 2020, if you look at the forward numbers, the first half doesn't really have a lot of growth baked in because gdp looks like it is going to be pretty tepid. all of the numbers are backloaded to the back half of the year, and they are really aggressive right now. we are looking for 15% year-over-year growth in energy. things are going to have to go really right for that to happen, the rest of the sectors, not much. barry: i am going to disagree a little bit. alix: i love that. barry: my perspective is if you look at the industrial sector, for example, in the third a reallythere was interesting come positive surprise. margins came all the way back above where they had been prior to the start of the trade war. we went through a solar dynamic in 2014-2016, when the

trade-weighted dollar increased. that would be assist president trump at a 25% tariff on the whole world. termsector took a hit in of the translation effect and what it meant for revenues. u.s. industrial companies don't compete in price-sensitive commoditized products further up the value chain. they made that adjustment, and earnings accelerated from that point. it seems like they've made a similar adjustment, so i think there will be some upside this quarter. ,hen global trade is recovering older exports actually contracted last year. gross came down, but it was still positive. productionke is if at the final demand, so if you look at the confidence based dynamic recovering, you should have pretty strong global export

numbers in the first half of the year. that provides outside -- provides upside for the industrial, the tech sector, and some others. that's where i think there's upside potential for the first part of the year. leigh: the interesting thing in the tech sector is the reason we still really like it and we are seeing upward revisions is because it is more insulated from all of that, especially the enterprise stuff. if we look at spending on , especiallyech domestic businesses, still green . the fear around the industrial stuff is that, yes, while we do -- what we do get read through from the trade war, the capex isn't there because of a secular shift in the way domestic businesses are spending. the question is, do we get that from the international side?

that's your bet. agreementy: i more in that i think there will be recovery in the first half of the year in global trade, but i think it is going to prove disappointing. we are in a secular trend of deglobalization. just same reason i don't recommend any of the global markets in this. be a't think there will , i alsoecovery, so me strongly agree what you said with respect to investment in the cloud. the sector, about they were caught up in that tidal wave of the growth versus momentum dynamic. leigh: which was warranted. barry: but then microsoft reported, and since then that group has been rocketing. if you look at bottom-up r&d spending, it is running at 11% since the tax cut and jobs act was passed.

actual spending on r&d was a beneficiary, but it didn't work. i point to those sectors where it did work, and agree that the secular trend is it is going to continue. leigh: i think that is the point people are may be missing, the switch from hard asset capex to software spending. this is replacing that hard capex. barry: to a great extent, that is right. my old colleague rick rieder talks about that constantly over at blackrock. and i agree, there's no question that investing in software, the cloud is diversified than physical equipment. by the way, the equipment invest in did not benefit from the tax cuts and jobs act because we already had 50% appreciation, so going to a 21% rate didn't change demarco cost of capital shortuch, but it did for

change the market cost of capital very much, but it did for short-term. up, thoughts on investors. this is bloomberg. ♪

alix: legendary investor howard marks joins us now in an exclusive interview with erik schatzker. erik: thank you very much. i am here with howard marks, the founder of oaktree capital. you say one of your strengths as an investor is knowing how to think about the future,

effectively evaluating the odds against available information. i want you to think probablistically. we started a new decade. does now strike you as a good time to be investing? is not.i would say it if you look, the market has been up for 11 years. we are in the longest bull market, the longest expansion in history. profits are not rising. stock prices are. it is a liquidity driven rally. that means that come from people having a lot of money to spend. if you put those factors together, it doesn't mean the market is going to go down tomorrow, but it does mean the odds are not, in my opinion, and the investors' favor. erik: is now the time to be a contrarian? we both know the economy is growing at a reasonable clip. forecasters say the odds of a recession in 2020 have to

climbed. stocks, as we witnessed last week, brushed off the threat of iranian hostilities and surged to a new record. high-yield spreads keep edging closer and closer to a new postcrisis low. well, the way i would phrase it is that this is a time to have less risk than you did three or five years ago. three or five years ago, we were here. and now we are here. all things equal, if we are here, we should have less risk than here. i don't know if we are going to go over the cliff tomorrow or continue straight up to the sky, but the odds are less in the weretors' favor then they three or five years ago. erik: i want to get to the substance of your new memo. many say that stockmarket is no

better than a casino. are they right? howard: investing, as i point out in the memo, involves hidden information, luck, and skill. the question is, how much skill does that investor have? if you don't have much skill, you are down to look and information, and becomes a coin toss. but if you have skill, you can perhaps have an edge. it is the difference between roulette and poker or blackjack. there's a science to playing back-check -- to playing blackjack. there's books written about it. you can actually get good at it. ed thorpe wrote the book called "beat the dealer," and he was barred from the casinos. he was too good. so you can get good at it. . you can turn it into a skill game. but most people who don't know

it,'t studynd if you don't have the skill, you shouldn't be able to expect to control the outcomes. say was people lack the skill required to be a superior investor. what should those people do? other activity, dentistry, law, veterinary, we pay people to do the things we can't do. so that's what they should do. they should get outside help. equityades, they went to neutral funds and paid 1.5% a year to other people to run their money. more recently, it turns out maybe equity, investing in the big stocks, efficient market is not a skill game, it is a luck game, so the hired hands can't

do any better, so they shouldn't pay them either. if you don't have a manager who has exceptional skill, and exceptional means rare, then you should go to an index fund, which does not presuppose skill and doesn't charge for it. --erik: what if what we believe to be the efficiency of a market is more the function of the availability of data and the computing power that can be harnessed to process those data, as in large-cap stocks? we used to think that generating a superior return in the stock market was a matter of skill, but it seems, to your point, that history has demonstrated that to be illusory. it is very hard to beat the index. by definition, in "lake

children are born below average, so only the exceptional ones should be expected to have the skill to be superior investors. erik: isn't the same thing going to happen to all the other markets as they become indexed? that is increasingly beginning to happen, in your area of specialty, the credit market. howard: yes. well, i like to believe that there is skill in high-yield bond investing, and of course, that we have it, so that we will be able to, through credit without, cut our risk cutting the returns fully commensurately, and that is the definition of outperformance, but we will see. erik: you say in this memo,

which i encourage people to read, as always, on the oaktree capital website, that investors often make the mistake of callooking what you the proposition, which is, and gambling, overlooking the odds. we know who caddis -- we know how catastrophic that is. can i translate that as buying without regard to risk? howard: absolutely. my book that came out a year ago, if you go in the index and look up no price too high, there's a lot on that subject. i think that is the ultimate sign of a widespread error. memo, as nothis what you by, it's what you pay for it -- what you buy, it's what you pay for it. you, andm going to ask

make reference to a charge i hope we can bring up, of microsoft. microsoft stock price relative price toosoft's earnings ratio, at any given point, you could have said microsoft is awfully expensive, i'm not going to buy. but what the stock price demonstrates is, regardless of the valuation, the stock kept going up. is this time different? well, the price always matters. if the price is 10% or 20% higher than it should be, that might not be enough to turn it into a bad proposition.

60 years ago, they were so expensive that they made good companies losing investments. the price can be too high. if you look at that chart, you can see there was a while when this price was ahead of the earnings, and as a consequence, which the stock didn't do anything, but maybe it's not so much too high that it turns it into a bad investment. erik: we spent so much of this conversation talking about indexing. most people know indexing through a three letter acronym, etf. the other we have come to accept a the cielo -- the clo, direct or indirect consequence of postcrisis bank capital rules. we are going to be hearing a lot from banks for the coming week. if the credit market, and your opinion, better or worse off without the bad capital used to

fuel it? howard: no easy answer. we are better off, we as lenders are better off, because of a bunch of competitors we don't have. but if the people hear direct lending is great because the banks are in active, if too much money rushes in and tries to invest too aggressively, that's bad news. so we have to take account of all of the considerations, not merely the banks' reticence. alix: does if you like --erik: does it feel like too much money has rushed in? howard: i would say so. erik: with that, we'll end our conversation with howard marks, founder of oaktree capital. alix: i'm still here with barry knapp of ironsides.

what do you think? where do you find the value? barry: i think that where there is going to be probably value in fixed income this year is going to be in the mortgage market, actually. issuance orut net investment-grade credit, it is going to shrink this year. treasury net issuance will probably shrink as well because the fed is buying $60 billion a month at the front end. part of the reason why think the yield curve will steepen. but the mortgage market, the fed is still reducing holdings by $20 billion a month. we were talking a little over the break about how strong the purchase part of the mortgage market is, so net issuance could be up by $240 billion or $250 billion this year, you could end up with total net issuance of over $500 billion in mortgages. if you think about the timing of

all that, when we get to the end of the spring selling season in april, may, right around the time when the fed is considering ending their fix the plumbing, ample reserve regime environment , you could really move mortgage spreads out a fair bit. anotherential for thing, tantrum but it is the part of the market that is least supported that will have the least supply, and that is the part of the market to watch. the corporate piece i am not as interested in. a lot of what you are seeing now, this interest is rolling off from when companies had to keep money offshore because of our taxation system, the three to five-year issue expiring, not as much issuance there is there will be in the market market. alix: interesting. that is a really good take. barry is sticking with me.

we will dig a little deeper next into morgan stanley. this is bloomberg. ♪

alix: welcome to "bloomberg daybreak." s&p futures still up by about 12 points. european equities a little soggy or -- a little soggier. the treasury market, 1.84%. jp morgan says maybe you want to be shorting the 30 year. the cable rate the under performer in the g10 space. otherwise, it is a stronger dollar story. this is bloomberg. ♪

alix: this is "bloomberg daybreak." i am alix steel. it be ation is will positive move throughout the week? will earnings matter?

a lot of liquidity in the market feels like a glass have to rule scenario -- a glass half-full scenario. in other asset classes, you at the friday flexner, and now you are up on the 2-10 spread. that is kicking up for bank earnings tomorrow. we have reports from citigroup and jp morgan and wells fargo. joining me is betsy gray sick and barry knapp of ironside macro economics is still with me. i love earnings season. what is your take away and what is the biggest thing you are looking for? of two.t will be a tale . -- it will be a tale of two periods. importantoks are getting those out of the management team. there we are above the street because of the steepener in the curb. alix: you are saying you expect

a steepener as well? focused on thes yield curve. my thesis goes back to the 2017 treasury reform proposal. i have been negative other banks ,ack to my lehman brothers days in part because of what happened in the 1950's when they had a similarly tight dilatory environment, monetary policy was tight. r.o.e. never got above 10% the whole of the 1950's. in 2018 and 19, you had a real significant shift from government securities to private sector loans. , cash that time period holdings came down sharply and profitability jumped good wrote -- r.o.e. is now something around 11.75%.

they reached a profitability level precrisis without as much leverage. for me i am concerned that in the fourth quarter as cash holdings started to go back up because of qe4 and injecting reserves into the system, does that degrade profitability a little bit? i worried about the asset mix because they have gone back to holding securities and not making as many private sector loans. loosening ofto see capital requirements on mortgage servicing rights so big banks can get back into the mortgage market. for me it is about the asset mix and the spread as opposed to the spread being driven by the shape of the yield curve. that is how i have been coming at it. i'm sure you have more details than i do. i am macro in my orientation. betsy: i do not think you will get what you want in terms of shift toward heavier loan mix in a material way next year unless

you are in a heavy consumer oriented bank. you are talking earlier the capital markets are wide open, credit spreads have tightened. the fed is pumping money into the system. that is driving competition for the commercial and real estate side. you had loan growth nice on the commercial side a few years back. marketsr because the were closed in december of 2018, but coming through into this year, you have to be in the consumer space if you're looking for loan growth. barry: unless we get a rebound in capex. clearly business confidence was impaired by the trade war. is strongly added too bank results or not is unclear. alix: when woodberry get what he wants? barry get what he

wants? betsy: next year. barry: we got our away back to precrisis levels. that was critical. the group is still cheap. there are only three groups anywhere near their long-term mean valuation levels. be whereit going to banks are able to cut costs and find operating leverage? will that be the play for this quarter? betsy: for the quarter trading could surprise positively with jeffries announcing a strong fixed income. you will have that dichotomy going on. as you look forward to 2020, you have consumer loan growth looking strong, you have spend looking strong on the positive side, and then you do have operating leverage is critical for bank stocks if you want to generate positive alpha.

you have to have positive surprises in operating leverage. the challenge for the coming year is the slow down in commercial and the accounting coming through cecil, the current expected credit loss is a new accounting requirement that started january 1. that is going to require banks, and any lender, any company that is in sec filer will have to upfront the reserve cost of an expected life of loan loss at the time they make the loan. that will get a lot of attention. barry: another thing that just occurred to me -- the plan for the gse's. if he decides to reduce their footprint and the affordability refinancethe cash out and the like, that could create more space for the banking system to pick up the slack in the mortgage market and they

could see greater growth. before you came on we were talking about mortgage and net issuance being strong. the housing market has a lot of momentum into the year. you could have growth. that is your point on the consumer side. what about technology? there is been a call for some people that the big banks are doing a good job using capital to replace labor. it is tougher for some of the regionals. are you of the view that technology is -- that the sector is helping? betsy: very much. we had a theme out a few years ago, banking at the speed of light. goal foressary, an end financial institutions. that is not just us with venmo, that is international global corporate consumers. we have a race on to get that done. facebook libra was a shot across the bow that you are not working

fast enough, but we know jpm is extremely focused on this. we know others like citigroup and bny mellon is extremely focused on this. technology is the driver of operating leverage -- one of the drivers, i should say. it is also a key driver of executing on what bank customers want and need. barry: the fed proposed payment system would be another shot across the bow. alix: you like american express, you like citigroup, but for very different reasons? betsy: why do we like pnc? because of the improvements in the regulation around liquidity and capital requirements. we are above the street on the pnc for 2020 because we have the cash reduction.

on the other hand, they do not have to hold as much capital. we put the buyback through our numbers. that is a little bit ahead of what management is saying but that is where we think it is going. that is why we have pnc. as we talk about american mostss, it is one of the weighted stocks i cover. we think they will be able to generate positive operating leverage in 2020. the street is not there. that is the core of that debate. for the quarter, we think the consumer spend being strong will come through. operatingis again leverage expectation story. we think there are levers they can pull, in particular in some of the latin american expenses to generate positive operating leverage.

the president of citigroup is on board already. she ran a latin american business, so there would be opportunities to deliver positive operating leverage to the company. where do you like banks and financials? recommendingeen the sector since the treasury reform proposal. i continue to like the sector. my view through last year was every time we had a yield curve related air, it was an opportunity. each quarter the numbers drove a higher high in share prices. i still think they're well-positioned as a consequence of that. regulatory loosening is coming through. i am still all in on the sector in general. i would not just concentrate on the biggest names. i would also be in the regionals. as an aside, i struggle with

american express, having worked at lehman brothers. alix: that is another story. barry: i could tell along one. alix: thanks so much to betsy gray sick. barry knapp, thank you as well. viviana hurtado is here with first word news. viviana: we begin in iran where protesters over the shot down jet have turned violent. protesters say they fought with police. teargas was fired at crowds. reversingeekend iran themselves, admitting the country's military mistakenly shot down ukrainian check. donald trump warning the ukrainian government not to kill the protesters. in the philippines, and erupting volcano forcing thousands of people to flee their homes. authorities morning it could get worse. there have been scores of earthquakes. that could signal another corruption is imminent. has beena airport

suspended. the british economy unexpectedly shrinking, in november gdp falling .3%. that is casting doubt if the fourth quarter had any growth. also adding to concerns in the bank of england. officials debating if an interest rate cut is needed. global news 24 hours a day, on air and on quicktake by bloomberg, powered by more than 2700 journalists and analysts in more than 120 countries. i am viviana hurtado. this is bloomberg. coming up, asset managers move into roles dominated by wall street. we will speak with the copresident of one of the biggest players in the industry, apollo global management. remember, bloomberg users interact with all the charts we are showing at gtv on your terminal. this is bloomberg. ♪

viviana: this is "bloomberg daybreak." i'm viviana hurtado with your bloomberg business flash. nissan. with bloomberg has learned the company is examining the possibility of raking away from renault. relations between the partners have turned dysfunctional since the ouster of former chief carlos ghosn. it is unclear how the separation would work. renault is nissan's largest shareholder. aston martin is making a last-ditch effort to bring in fresh funding. lou berg has learned a canadian billionaire is willing -- bloomberg has learned a canadian billionaire is willing to inject billions of dollars. amazon founder jeff bezos is likely to face unprecedented

protests this week on a trip to india. thousands of smalltime local retailers pledging to oppose amazon's pricing and exclusive selling practices. india is one of amazon's fastest-growing markets. i'm viviana hurtado and that is your bloomberg business flash. alix: time for bottom line, look at companies worth watching. today we will drill into apollo global management. the firm announced it is providing an 800 million dollar term commitment to new fortress energy, all part of the push to direct lending. joining us is james zelter, copresident of apollo global management's credit arm, which oversees more than $200 million worth of assets. lisa abramowicz is also with us. howard marks of oaktree was on earlier talking about direct lending. here is what he had to say. offe as lenders are better because that is a bunch of competitors we do not have. people here that direct

lending is great because the banks are in active, if too much money rushes in and tries to invest too aggressively, that is bad news. alix: too much money? james: i think it is not. howard has a great firm and we have been thoughtful about how to structure our business. it is about the scale of your platform. you need to be judicious, and we are on an extended economic cycle. our platform has shown ofilience, even in periods 2015 or 2012 where there was volatility. i believe we have a leading industry opportunity in terms of investors. lisa: there is a question of how much money has come into the market. that is what he was talking to. that does change the background for you and others. how are you trying to use your scale as a competitive advantage? about pickingll

your industries and having an origination business in terms of your ability to be not only scalable but flexible and understand the ins and outs of various opportunities. from our business, we've brought on the expertise, we have the scale, not only in the midmarket but in the large cap area. scale,hen you talk about this morning you were announcing an $800 million direct loan to a specific company. a $1.8 billion loan. last did a $1.8 billion loan. syndicatedassing the loan market entirely. james: the syndicated loan market is dominated by the banks and we are a big player in that lice. we buy syndicated loans. 35 to $40posure over billion in that space.

that will be the large driving force of corporate borrowing in the u.s. and europe. there are a variety of companies based on their industries and where they are in growth and what they are doing based on an operating business that that loan market is not available to them. new fortress is a great example. it is a business that is a great example. they have raised a lot of equity and are taking advantage of the are bringingnd cost and energy-efficient services to puerto rico, mexico, jamaica, and they are doing it in an interesting manner. lisa: i understand the advantage from your perspective to do the direct loans. you know the company well and get a lot more say in how the company operates. what is the advantage for the company? james: in this case the company is growing rapidly and wanted a facility that can be paid back at any time. we gave them that ability.

we also help them raise a bit more capital to invest in capex, which they might not have gotten in a syndicated market. for them is the ability to have that flexibility, to do it in scale and to do it quickly, and to deal with one counterparty. if there are challenges or changes in their business, we will have that kind of dialogue with them directly. lisa: how closely do you work with them? james: very closely. this was the result of many months of activity and dialogue. the founder of the company is a fellow we have done a variety of business with. that is important. the broader picture is direct lending is large, private lending is large. when you think about what apollo has done, we have grown our credit platform dramatically to a variety of areas with the evolving regulatory environment. lisa: are you planning new acquisitions? james: no acquisitions on our horizon.

we have a tremendous amount of organic growth, and from our business whether it is aircraft finance we continue to add expertise in the private credit and debt areas. alix: what are lending standards like? james: certainly the regulators are being strict and stern in a variety of areas. the big issue is not on leverage but a lot of the pro forma justice. when you look at what has been promised by companies doing mergers over the last couple of years, many of those proposed pro forma adjustments have not come to fruition. there is self-control in the market. certainly the ability for us to be able to navigate that and understand what our advantages are is important. lisa: what kind of returns are you expecting for 2020? with ain credit overall, lack of being able to get great duration and great yield in the treasury market, i think you are

seeing into broad credit mid to high single digits would be a good year. the market is dominated by politics, concerns of inflation and growth. those three areas would probably -- i think it is going to be a choppy 2020, especially in the springtime when you think about what is going on in washington, d.c. with the impeachment process in the political process, but we are looking at mid to high single digits for a lot of credit products. lisa: like high-yield bonds and leverage loans. james: high-yield did quite well last year. leveraged loans do not do quite so well. a bit of industrial withdrawals. i think you will see a challenging year and year of dispersion. lisa: going forward, you talk about politics. given the flood of cash into some of these funds, what are the political risks in terms of how you represent yourself in the firm given the involvement with the companies.

james: we have to be very thoughtful about the environment and what is going on in this administration with regards to regulation. we have to be thoughtful about a wide variety of outcomes. intoinly a lot goes picking the parties we do business with. this is a company, new fortress, esg in terms of those objectives, this is a company that fits right down the fairway. we think we are doing right by a government in these countries where the energy policy is a big , we are jamaican mexico providing a company capital to grow and do any fuel efficient manner. lisa: the credit cycle has to frame all discussions. people are saying we will not see a recession this year, maybe not next year. do you agree? james: we have not made our fortune in the past by

predicting when recessions are. we are in an extended stage of the cycle. very worried about what is going on with low unemployment and the impact of inflation on margins. i could see a year where corporate earnings are not quite as robust. the banking industry is in great shape. the consumer is in solid shape. valuations are high. commodity prices are high. if i had to make one prediction, you will see conversations about stagflation, higher commodity prices with low economic growth, but it is cautious. you have had to be cautious to do well. some areas of credit have not done well. distressed investing has had a tough time the last years by folks doing back end equity and energy names that have not done well. there has been challenge spots out there. apolloim salter of global management and lisa

brummel -- james zelter of apollo global management and lisa abramowicz. if you are jumping your car, tune into bloomberg radio heard across the u.s. on the sirius xm channel 119 on the bloomberg business app. this is bloomberg. ♪

alix: time for technically speaking. bill maloney joins me. check him every day on squa < go>. lululemon. bill: lululemon up premarket around 3%. within its multi-year based, then you had the breakout in 2018, then you have a clear uptrend above 207. the chart looks good.

♪ hey. hey. you must be steven's phone.

now you can take control of your home wifi and get a notification the instant someone new joins your network... only with xfinity xfi. download the xfi app today. jonathan: from new york city for our audience worldwide. i'm jonathan ferro. "the countdown to the open" starts right now. ♪

jonathan: coming up, earnings season upon us with equity markets trading near all-time highs. the chinese vice premier landing in washington as the iranian government admits it shot down a commercial plane. protests in iran turn ugly. with 30 minutes until the opening bell, here is your monday morning price action. equity futures advancing 10 points, around .33%. euro-dollar unchanged. yields higher three basis points. your 10 year is 1.85%. will earning seasoned backup a record high stock market? >> can we count on further valuation expansion? >> we need to see the evidence of earnings picking up. >> the earnings engine needs to kick into gear. >> we expect earnings to pick up. >> many forward earnings are still being caught. >> the short-term looks constructive. >>