trump is fixated on trade deficits and is too short-term thinking. 6%, china's magic number. their economy grows 6% last quarter as the country stabilizes, paving more green chutes for the global economy. and the u.s. agrees to 20-year bonds. the treasury department will start issuing 20-year bonds in the first half of this year as the government looks to more ways to fund the rising deficit. welcome to "bloomberg daybreak" on this friday, january 17. we made it, twice. congratulationings. this week has felt like a real slog, unless you're long in the s&p, then you were pretty happy. a stellar week, another hoard high. tech continuing to outperform. this time small caps participating in the rally. your dollar down by it .2%. so a stronger dollar story there. time now for global exchange. we bring you today's market moving news from all over the world.

our bloomberg voices are on the ground with this morning's top stories. we begin in asia. china's economy stabilized last quarter, showing greater than expected strength if december. fourth quarter g.d.p. rose from the year earlier. joining us now on the phone from beijing is james, bloomberg-china economy editor. walk me through the details and where the question marks are still going forward? reporter: looking at the data that came out today, it really was a surprisingly strong finish for 2019, for china's economy. i think if we look past the g.d.p. numbers, china's g.d.p. is more a political target than a real indicator of what's going on. if you look at the retail sales, industrial production and fixed investment numbers, there was a bit of a rebound in december. sort of ending the year on a high note. a part of that was, i think, the

chinese numbers -- efforts to sort of support companies is working and also i think the optimism you may have seen in december from the signs that the trade deal was going to come together affected chinese businesses, more invest and uptick in production. all those things combined. it was a surprisingly good end to a year which had been basically a story of continually slowing economy. alix: thank you very much. and now we go to europe where the e.u.'s new trade commissioner using his first washington trip to warn against protectionism. he didn't pull any punches, criticizing president trump over short-term thinking. bloomberg spoke with him exclusively on resetting relations. >> this is the objective of the visit, is to reset the relationship, try to understand each other in relation to a number of trade errors at the moment and find common ground with the united states in trollings many issues.

-- in relation to many issues. we started on a positive note. alix: give us the latest. what can we expect now? reporter: first of all, i would say the louge there was very interesting. phil hogan is the head of the european commission for trade. this is a huge portfolio for the europeans, it's no secret that the relationship between the e.u. and the united states has been difficult of late. so it is interesting that he was in washington to reset the relationship. but used that kind of language where he openly said, look, trump is too obsessed about deficits. he's also not being fair. by the way, he is playing politics with trade and he's shortsighted. this is not good for the u.s. or europe or the global economy. then he also said that the europeans at this point should also fight back this notion, this narrative, from the u.s. that the relationship is unfair. that they are somehow taking advantage of the united states. so hogan also suggested that if you look at the data, it's much more balanced than you would think.

now, going into next weekend, this is interesting, phil hogan said to steve mnuchin and the mayor, the football minister of france, will be talking -- finance minister of france, will be talking in davos and that will be seen if we get retaliation from tariffs. that would have a detrimental impact on french products. alix: thank you very much. and now we want to head to the u.k. where we tail sales unexpectedly fell .6% during the crucial christmas shopping period. all of that adding to speculation that the bank of england may cut interest rates. joining me now from london is our reporter. put the numbers in context. reporter: end of the day, another kind of poor data release scene out of the u.k. here. retail sales unexpectedly fell in december. that's the fifth straight month where they've seen no growth or a decline. obviously that covered the crucial christmas period, covered black friday as well because of the quirk of the reporting period.

so not great news on that front. bigger picture, the bank of england, there's been this january rate cut and markets now priced in the 75% chance of such a move. that's really almost a slam dunk s far as that's concerned. alix: thank you very much. and then we turn to the u.s. where the treasury is going to start issuing 20-year bonds in the first half of 2020. the government is looking at different ways to balloon a -- fund a ballooning deficit. steve mnuchin said the government will continue to look into other products to finance debt at the lowest cost over timement here in new york with more -- time. here in new york with more. what's the longer-term implication of this? reporter: it's going to be interesting to see who steps up to buy these 20-year bonds. typically when you look at the 30-year treasury, that's your pension funds, insurance companies, so it's going to be interesting to see if those are the natural buyers of 20-year debt as well. that said, europe and japan also have 20-year bonds so it makes sense that the treasury went

within the existing market structure and we could see domestic funds really interested in these as well. alix: do we see any longer term, like 100 year, 50 year? reporter: mnuchin said they're looking at that. he said in september and in august that they were seriously considering that. but it makes sense that they went with this 20-year security and didn't go with that sort of wild card long-term bond. alix: thanks so much. now we want to go to industrial earnings. a stock down by about 4%, 5% in premarket. our bloomberg opinion columnist is here with the result. what did we learn? reporter: it is. its customers tend to be the big manufacturers that we hear from later in this earnings season and i have to say,, looking at these numbers, it doesn't bode well for those results. part of this is just great expectation. shares of fastenal ran up

significantly at the end of 2019 and these numbers do not measure up to those expectations. a couple of the disappointments, daily sales increased 3.7%. that compares to 13.2% a year earlier. and 6% in this third quarter. so a significant step down here. fastenal talking about the general slowing in economic activity that they experienced in the second and third quarter it bed -- continued in the fourth quarter. they're not seeing a turn-around here. but also on the gross margin front, this of course is a particular watch point given the entrance of amazon in the industrial distribution space. and the cost of competing with that. fastenal stock continued slippage in its gross profit margin and they say that's because of onsite services for customers. but of course what has been offsetting that for them is continued stability in its operating margin. they did not get that this time around because of that weak sales growth. alix: thank you so much for the analysis. and finally, we wrap it up with

politics in the u.s. the impeachment trial of president trump kicks off next week in the senate. the most controversial issues will be tackled behind closed doors. chief justice john roberts will preside over the proceedings. joining me now from the white house is our bloomberg chief washington correspondent. what do we expect? reporter: good morning. yesterday i spoke with several top republicans in the senate about a potential timetable for how long precisely this trial is going to last. they're saying anything from a couple of weeks. so the anticipation at least from the white house's perspective is they would somehow be able to get this trial completed before the president's state of the union address on february 4. meanwhile, democrats doubling down, trying to push for there to be, what they say, more transparency. they also wlike to see key witnesses. they're looking at the testimony and public comments made by parnas, a former close associate of the president's personal attorney, rudy giuliani. this, of course, they feel is all the more reason there needs to be a continued investigation in the senate. however, you look at the math in

the senate and i'm just not sure that the democrats are going to be successful based upon my reporting in their efforts. i'm also keeping my eye on senator joe manchin, a democratic from west virginia. where will he fall in this? that's a state that president trump carried by more than 20 percentage points in the last cycle and whether or not he sticks with democrats or reverses course and joins the republicans will be a key indicator of momentum heading out of this impeachment trial. alix: thank you very much. and one other story we're all watching today, and that is google, its parent company has joined an exclusive club. it has a market value of more than $1 trillion. only three companies currently have broken through that threshold. four if you count amazon. apple, microsoft and one more is the gainers in that club. here's why we really care about it. the top five members of the s&p 500 now represent 18% of the weight of the s&p. that's much more than it was 25

years ago at about 5%. that gives them a huge oversized impact on overall market direction. makes it really hard for active managers, as well as passive funds, who do not own these stocks. much more on your morning trade analysis on the markets. this is bloomberg. ♪

alix: time now for first take. news and trading analysis of the markets.

i'm going to start with damian. the trade data. first of all, regardless of if we trust the numbers, is this a green chute now in china? >> it confirms that manufacturing is stabilizing. what's underneath the surface more me is the auto data. we had good auto sales and production data. 1.8% year in year increase in december. that's the first time since july. alix: when they started cutting subsidies. >> exactly. that's a great point. this good data, if you expect to see more of it in the first quarter, they'd be found wanting because last year, if you remember, there was a lot of front loading ahead of the tariffs. these comparisons will be tough to beat. i'm not holding my breath. but it's a little bit of a stabilization. confirms what we already know. >> a little bit. we'll see if this is a debt cap bounce. 10 years ago i was working at the journal, the conference board of china did its editorial board for us. they said, at the moment, and this is 10 years ago, china is growing at a sub-6% rate.

get used to it. this is the real china number. that was 10 years ago. if you take it forward, it's probably substantially lower than that and the numbers we're seeing realistically are not that high. >> you bring up a great point. if you look at the brookings institute, which has done the breakdown of -- what is that inflation number? what does that look like? they're saying the numbers were inflated by about 2%. if you take that forward, assuming on a provincial level you're incentivized to inflate those numbers, to make sure things look ok, they put that number at 2%. i would argue it's a little bit higher. just because we know how china reacts. but to the point on how we close out the year, you had a huge push, you had a triple cut in order to solidify into the lunar new year. you had the protection in terms of how do we spur growth, how do we get that into the market? and you had the special purpose bonds getting reissued. you had a lot of things coming in to try to prop up that market into year end to make things

look better. >> we've seen a lot of fund flows. look at the capital in china. we've seen a lot of interest in chinese bonds and equities. on average from september on it was something like $13 billion of fund inflows into china. it averaged $11 billion per month for the eight months prior to that. we're seeing more interest. has something to do with the yuan trading above $7. now it's on the way at $6.88. things are getting dicey here. >> i was speaking to someone yesterday, he said the equity flows they were seeing on their desk was enormous and they think that the yuan is overvalued. they don't eis appreciating much more. they think it's overdone because of all these flows and china obviously massaging the rate to keep washington off their backs and they don't see it going much lower. >> the other thing you have to look at is we've had a significant ramp-up in through-put on the oil side. so if you look at refining assets coming on, chemical assets coming online, you're taking in more dollars because

you're pushing a lot of exports into the market. people have said, look at oil demand. but also look at gasoline exports. look at this little export. they're taking one thing and everyone's saying, oil demand is showing growth, but, no, they're taking oil demand from other places because they're going to force other refiners, other chemical facilities to ramp down and have those economic cuts. alix: they're doing the same thing with copper which destroys the data. are they really running or buying that much or is it just more their own product? but, ok, fine. i get it. let's get realistic here. does it matter? in that, like, there's stabilization and whether it's going to be 5% or 6%, clearly the market is going to stabilize here a little bit. data's data. don't you want to stay bullish? bank of america strategist was like, let's say it irrationally bullish? what else are you going snood >> i was going to say, you do stay bullish until you see the catalyst that comes in and the wheels fall off. i think that catalyst is going to be what you were talking

about in the earlier segment. when you have the e.u.'s trade negotiator essentially poking the bear and threatening him with tariffs, say, go ahead, bring him on. put tariffs on the e.u.ment it's going to happen -- e.u. it's going to happen. there is going to be friction with the european union and i think that's where, when people say sector rotation, i say country rotation. or -- and you look to place your bets in the countries that are going to do better with trade and the european union isn't going to be one of them in 2020. >> if you look at the shanghai composite versus the s&p 500, if you had this view of, oh, everything's going to be better, all this data's coming out, but you had this big divergence, it just so happened to start happening in september, an increase in october, when did row poe start? -- repo start? is it the data or is it really just quantitative easing that's starting to prop things up? and you're starting to cease that shanghai kind of show that

dwermingence. is the data that good where you're going to get stabilization and there's going to be a catch-up rally, or is it something where the s&p is now overvalued and you'll have a fallback? alix: cut by $5 billion now with the repo markets, doesn't that count? as taking some liquidity? you can't have it both ways. >> you could say that. but we were talking before about the different cuts, the new fed components and there's a lot of dovishness still in there. the question is, if you pull out the 5ds billion and all of a sudden market -- $5 billion and all of a sudden the market do you o pull back, react? >> it's liquidity, stupid. that's really what it comes down to. the former advisor -- alix: i did not think you were calling me stupid. do not worry. >> i would never. [laughter] if you just look at the fact that we announced a 20-year,

that tells me, forget about curve steeping -- it's telling me the used treasury thinks long-term rates are low and they want to take advantage of that. we're going to run a budget deficit of $1 trillion per year going forward. of course they want to lock in some of these low rates. it's more telling than anything the fact that, we have these repo issues, we have low rates in the u.s. and we have wide rate differentials with china as well. the 10-year is 130 bits wide. that's the widest we've seen. it makes sense that we see influence in china in an environment where we have $11 trillion of negative yielding. >> that's a good point. everyone's excited about a 20-year. there was no appetite for a 50-year or 100-year which is where they really wanted to be to push this out as far out as possible. they settled on a 20-year because there was nowhere else to go. there was no appetite past 30. >> just to follow up on that. in terms of where the rates are. if you factor in negative rates and then inflation, most countries that are technically positive still are yielding

something negative once you factor in inflation factor. so you have this component which is why we talk about gold, where everyone has said, why buy gold, there's no yield? when it yields zero, it's yielding a positive yield at this point versus the other options in the market. >> that's a great point. real yields have turned negative. we saw three rate cuts yesterday. egypt, south africa. that's driving real yields down. alix: it's negative now, right? >> it depends which part of the curve. you have to look to places like south africa, indonesia, mexico, brazil, russia. those are some of the few markets left where you get these wide real yields and the ability for these economies to stimulate growth via monetary -- via the central banks. >> if you look at the russian economy and all of a sudden you have these terrible numbers and now the government disappear, there's going to be a resurgence in terms of how are things being adjusted? but the one thing that's interesting is indonesia in terms of where there is some possible growth. south africa we've spoken about

in the past. the issues that are there in terms of s-com and where things could go going forward but indonesia is an interesting spot in terms of, we still have tariffs. people are going to look to get out of china, where do you go? vietnam and indonesia are very interesting spots. alix: the other solution, a gold standard. [laughter] that's my way of deprooing judy -- introducing judy, trump officially nominated her to the federal reserve. you're sighing but you're going to have someone with these relatively extreme views coming in, talking about there's no rules, you have to level the playing field, the way to do that is the classic gold standard. regardless that you can't do that. put that aside for one hot second. >> i can't wait to take it. we have someone who went from the gold standard, as you say, it's a finite supply so therefore money supply in theory is limited if you base it on gold. to someone who says, interest rates should be at zero, let's go full dove. at the end of the day, when i talk to traders, she just wants

the job. that's it. she's going to say whatever it takes. alix: she's said that before. that's her position. >> she wants the job. alix: lower rates. >> he wants lower rates, i want lower rates. >> i don't think she still believes in a gold standard. her sbe view on wednesday with -- interview on wednesday, she said she doesn't think inflation targeting is working anymore. i don't disagree with a that. what she didn't say which is a little bit alarming is the fact that ioer, the interest on exit reserves, was impled in -- imple thed in 2008, is giving an unfair advantage to banks to basically hold fed assets. 2.3%. so she's wanting to see a change in the way monetary policy works. i don't disagree with that. alix: this is great. damian, thanks a lot. mark, sticking with me. a reminder, all the charts we're going to use in the next two hours, go on your terminal, browse them and check them out.

this is bloomberg. ♪

>> this is bloomberg day break. your bloomberg business flash. confidence in asia. this year bank plans to add dozens of staff to its wealth business and hong kong and singapore. this week, for 2019, morgan stanley reported record profits. and shares of gap rising this morning. the apparel retailer saying it will no longer seek to establish its old navy chain as a stand-alone company. the premise was old navy's fast growth wasn't being reflected in gap's stock price. but in recent quarters, old navy's performance has deteriorated. that's your bloomberg business flash. alix: thanks so much. gap's decision on old navy has an interesting repercussions for business diversity stats. there's going to be one less female running a fortune 500

company. had this happened -- had the spinoff happened, the c.e.o. would have been a part of a small group of women who run publicly traded corporations. old navy is doing enough to rank it among the nation's largest. women comprise just 5.8% of the c.e.o.'s in the s&p 500. coming up on the program, the ink is drying on that monster trade deal, potential action plan for from china due next month could still pose for some risks and. morgan stanley, ahead of strategy, he'll be joining us next. this is bloomberg. ♪

alix: happy friday. the s&p falling after closing after a record high yesterday. european stocks also at a record high because of technology.

apple getting a nice upgrade at morgan stanley. google hitting the $1 trillion mark. in other asset classes, a similar story. flat.ar-yen is now safe haven traits came off the burner. eaker u.k. sales. a 20-your issuance coming from the treasury. earnings are rolling out. tech this weekend. revenue and earnings were also a beat after a ginourmous write down. eight months ago if you told me it was going to be about offshore drilling and they would be one of the leaders, i would've called you crazy. >> when you look at the purchase, it happened a little early.

probably at a price that was a little high. if you look at how the diversification has worked at in their favor on the international front, they beat on the international side by about 7% with decent guidance going forward. the offshore is the one that really has that quality needed. i think you will see that a little bit ramp-up in the offshore market. alix: the readthrough to the onshore drillers like halliburton in the u.s. and the enp's, how bad will get for them? mark: it will keep getting worse in q1 because of the holiday slowdown. spreads are reactivated. are they going to look to exit? halliburton has identify different components they are looking to sell. they are looking to diversify, streamline, and raise capital.

the u.s. trade deal, $52 billion worth of energy. thed westin joins us now, host of "balance of power" and "wall street week" which is really good and you should watch it. david: china trade was a big one. we had the u.s. treasury secretary under president obama. he were talking about the energy purchases. look past him much they are buying from us. there are larger issues. this is what he said. agreement judge the about whether it advances the kind of economic reforms we want to see in china or not. the big question is, how do we accommodate an economy as important, as large as china

that follows quite a different set of rules into the global economy? that requires us to have more urgency around a common set of rules -- convergence around a common set of rules. david: phase two, he things you can't do that bilateral. you have to have multilateral. eu, twto on ana, world capacity. upll street week" coming tonight and plays all we can log on bloomberg television. let's stay on trade and looking at phase two. anding us is michael zezas mark razzano. david mentioned -- what do you think? michael: it is fair to say we are intricate temporary lull intentions with china. i think there will be time for

this to work out. if you look at the timeline for the resolution mechanism, probably the first time it will be tested is in the third quarter of this year. that is more or less for the good news and for the moment. -- ends for the moment. china is supposed to deliver within 30 days as set of guidelines to how it will uphold its into the standards on intellectual property. it is possible the u.s. is not going to be satisfied with that. lullp of that, a allows for the u.s. to refocus on the eu. that has been a tricky negotiating process. there are plenty of catalysts and short-term that could cause issues to flareup. the airbus issue, the digital tax issue which is something in the next couple weeks we are supposed to watch around davos. i would characterize trade policy is far from settled, even though the phase i one agreement

is quite proper hence of. david: one thing he said is a real change. the good arbitration. this time there is an automatic snapback. if we get back into a spat with china -- on the eu point, it's a terribly important point. the digital tax is a real problem right now. michael: if you look at it as a temporarycreated one potential pause with an important trading partner. now we are focused on trading with another partner. the notion we move past trade risk for the markets generally i don't think makes a lot of sense. mark: you bring up a great point in terms of timing. it will take time to get it into place. you have 30 days to find out what they can do. we will rely on the chinese traditional -- judicial system which is problematic. if we like the response, the ghost of the trade representatives. you will get this weird slowdown

where i still struggle to see what china is really going to deliver. if they do try to meet those numbers, it is at what expense? will they buy less from europe? less from latin america? there is a lot of caveats within the trade deal. if the price is right. how do we protect ourselves while saying we tried but the u.s. did not deliver by making it available? what does make available mean? u.s.-eu, thethe problem is did we skirt debbie to rules? -- wto rules? is there an impediment to the way the eu wants to deal with us because we had side deals with china? and set a bilateral having multiple entities. taking --erday he was i'm surprised to see how aggressive he was. he called president trump

obsessed over the deficit. they made more conciliatory comments when he spoke to vonnie quinn yesterday. is that the way to do it? david: it was strong leg was for a new diplomat. he is pretty adamant. he has a tough job because you talk about the digital tax. france is driving it. that is not a european issue. europe says countries do what you want to do. michael: negotiating with china and negotiating with the eu and multiple entities. there is far more likely to be impasses. the eu has said they are willing to negotiate on industrial tariffs. the u.s. wants to negotiate more broadly on agriculture. that's an impasse. what has the u.s. behavior been under this administration and what lesson to did take from the china confrontation?

tariffs are ineffective negotiating tool. i'm not saying it's right or wrong but it's a lesson they learned. the problem is we start negotiating with the eu and keep that risk alive. david: and we happen to be an election year. president trump could dial it up or dial it back depending on how his polls are doing. does he want to get the markets coming back up and we will get volatility throughout the year on trade. mark: in order to get elected in this country you have to be tough on china. when you looking at the conversations with the eu versus china, the eu clearly has some weak data. so 50 on a lot of key metrics down eight contractual basis. a contractual basis. max stimulus unless we do some thing else. where china was coming from a different strategy, they have that communist regime in terms of those numbers, but they were

stronger. they have the export market. they are the second largest market in the world. the eu does not have the same footing. alix: to not lose sight of the fact there are trade imbalances within the u.s. and eu. that needs to be addressed. what realistically do you think they can come to an agreement on? there are legitimate concerns. michael: i think there is legitimate grievances here. your point is what is practically possible is actually going to happen as opposed what is right or wrong. the comments from the eu, trying to persuade the u.s. not to look at this is a good deficit basis but trying to account for services, this administration, for better or worse, thanks it is more important metric to them. until we hear the president speaking otherwise they will be focused on that. that means negotiation will have to not just be on industrial issues but agricultural issues. there probably has to be a lot more back and forth.

there is risk that goes along with that before you can open a negotiation of that scope and scale. alix: how much of this also is a backdrop for impeachment? as that heats up do we get more trade rhetoric? david: there is always that. we will see how the future plays out. it looks like it will be done in the next two to three weeks and will be over and done and gone. unless something really comes up that is a curveball, which is what the democrats are hoping for. alix: mark, trade volatility. how do you trade all of this? mark: you have to be noble. when you are looking at how things are going, you will get a snapback trade. are,rms of the way things i think the russell is very interesting. the transport sector is a bit over its skis. rails after csx's

weak reporting. coal tends to weigh on earnings going forward. alix: i appreciate the conversation. michael zezas and david westin, always a pleasure. we have an inclusive interview with dwight scott, blackstone's senior managing director. you don't want to miss that. check out tv . watch us online. this is bloomberg. ♪

alix: if you want to find out what is going on, there is one person went to hear from. that is dwight scott. he joins bloomberg's erik

schatzker for an inclusive interview. the overseas blackstone's credit business. erik: it is always great to have dwight scott here with us at bloomberg. dwight: how are you? erik: i am well. cofounders has's retired from blackstone as of january 1. what changes? dwight: retired is a strong word. erik: i could have put it in air quotes. dwight: he's the chairman and he will help us with our direct lending business. i would jokingly say the main thing that changed as he does not wear a suit anymore. he wears a sweater. we have been at it for six years, this transition. it is a very important transition for us. the transition from founder to fully integrated part of blackstone. i think we have done that quite well. we are a 15-year-old business.

billion in assets under management. we have a strong, experienced team. our management committee, 16 people, 12 of been there since before blackstone bought us. a lot of continuity in the business. erik: how would you describe your credit right now? dwight: cautious but busy. those things don't seem to go together. market.ery confident the consumer drove 2019 with confidence by spending. i would say the investment community is confident. it changed when the fed started easing earlier in the year. you see that in returns across the credit and equity last year. the business community, which was losing his confidence, i think with phase one behind us in the trade agreement, that confidence is starting to creep back in. the market is good.

equity markets are good. we are at tight spreads. in credit what we do is we back up a little bit and say, where can we be protected? erik: where is that? loans, in 2019, leverage capital structure. they are secured. you can trade them so they have liquidity. we had a lot of business there last year. and direct lending, which has similar characteristics but is private. much of our activity in 2019 and out 2020 will be the same, those protected areas where we feel we can position ourselves in a relatively aggressive market. erik: you are reluctant to buy what? dwight: distress is hard. this kind of market makes distress particularly difficult. everything that has any kind of distress in it, if it has not been able to refinance itself, fix the company, fix the balance sheet with this market, there

is real risk. erik: is that why it has been so difficult to make money in distress? dwight: i think it is. it will come again. all these things happening now will set up the next distress cycle which is why it's important for us to stay active in that business. right now it's a difficult place to make money. erik: it is not getting easier to make money in distress? dwight: in the first two weeks of this year the world has been on fire. energy, for example. if you think about upstream energy companies will have issued by the end of this week over half of the debt they issued all of last year. the world is a little more aggressive right now. it is great for the companies and gives them more opportunities but it is a place where we want to be cautious. erik: pg&e was probably the biggest distressed opportunity in 2019. why didn't gso participate? dwight: pg&e is a fascinating story.

is a utility that has been around since the gold rush. it has been serving a community that is one of the fastest-growing and wealthiest in the country, which means one of the wealthiest in the world. it cannot serve the community. that is before the recent fires. it has a political aspect to it, and economic aspect to it. all those things ultimately for us, when there is a political peace that comes over the top of an investment it is hard for us to take a big position. close see now, they are to an economic deal and now they have to go face the state of california. that creates too much risk for us, particularly binary risk. you want to believe any distressed situation when a company comes at a restructuring it is strong and can grow. this one we were not comfortable enough that is where it was going to end. erik: is that still the case? dwight: it has made good progress. there are a lot of reasons for the state to want the company to

be viable and strong. erik: this political risk concerning company like politica pg&e. there is the importance of brand. brandarista blackstone's -- is it a risk to blackstone's brand to go long in the pg&e restructuring? dwight: i think our two things going on. i think there is political risk in a credit investment that can create binary outcomes. we hate binary outcomes. we don't want to lose all of our money. then there is brand. brand is an important thing. that might keep you out of an investment in a type of company you think would be damaging to the brand. i think that's a good investment decision, unrelated to what you are trying to do more broadly with the firm. erik: when you look at pg&e today it appears a couple of your competitors who did choose to purchase of eight, elliott and pimco, will make out like bandits. does it make you wonder if you

made the right decision? dwight: i don't think so. for us this was not the kind of investment we wanted to do. i want them to do well. that's a good thing for the market. the story has not been fully written yet. erik: let's talk about valuations. investment-grade and high-yield are barometers for what is going on in credit. both had extraordinary years in 2019. ig has not been so hot in a decade. dwight: an extraordinary understatement. erik: can it continue? dwight: i don't think the things that drove last year can continue. you have the underlying rates falling and you had tightening spreads. investment rates might run 100 basis point spreads to treasury's high-yield that is 350 basis points. maybe even higher today. those are historical tight levels, certainly in high-yield. there is a saying that is been around a long time. if the leverage multiple of a

high-yield company -- debt -- is a higher number than the rate it pays on its interest, on its loans, on its debt, that's probably a sell signal and that's happening in the market. particularly in fixed income be a little more cautious. the reason we like loans is they don't have that spread. it cannot tighten to the same degree. you have your senior security capital structures. it turns out the market does turn, there are increasing losses and you should get a much better recovery. erik: when you say it is a sell signal, is also a sell signal for gso because you on the securities, you are selling them and buying things you think are safer. dwight: there is a strategic part of credit. there is also a very tactical part of credit for that specific company. it depends on the company. if you look at the portfolio today, it is heavily weighted

towards loans, either private or public and heavily not related towards -- erik: hiring is a key part of tso's futures -- gso's your success. where are you staffing up? o places.w we brought on a team late last year to do structured products and sell it to the insurance market. it's another type of product that helps our overall marketing, our origination slate. we are excited by this deal. we are shaping that team and continuing to grow that business. that will push into our broader portfolio and i'm excited about what we see. i think the insurance markets need our kind of originated paper. we will see a lot of demand over the next few years. the other place where we see a change in the market is technology. we need to add to our team there.

technology, we are seeing growing companies getting larger, more buyout activity. all that leads to more demand for our capital. but it is very difficult. there was a deutsche bank report out that called technology pervasive disruption. i agree with that. in disruption that changes technology can cause are particularly troublesome for credit. you want to stay out of the way of those disruptive events and get involved in some of the growth happening in markets. erik: cap many people do you need in tech? -- how many people do you need in tech? dwight: not that many. half-dozen overtime. erik: thank you. that is dwight scott, the president of gso talking to us about credit. alix: really fun interview. much more coming up. this is bloomberg. ♪

alix: happy friday. we made it, congratulations. the equity market has been small caps outpacing large caps for four straight sessions. optimism within the equity market led by tech. other asset classes a reverberation of that. cable getting hit with idiosyncratic economic factors. a risk on field in the market continuing to grind its way higher. coming up, macro policy perspectives founder and president will be joining us. this is bloomberg. ♪

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january 17. i'm alix steel. here's everything you need to know at the hour. let's take it from the top. china's growth stabilizes in the fourth quarter, setting up more green shoots for 2020. >> if you look at the retail sales number, if you look at industrial numbers, there was a bit of the rebound in december, so the end the year on the high note -- so they end the year on a high note. >> if we are working together, the mutual benefits can be significant. alix: phil hogan comes out swinging against president trump's trade policies. >> if we fail to do so, the damage will be significant also. >> it is no secret the relationship between the eu in the united states has been difficult of late, so it was interesting he used that kind of language. he openly said trump is too obsessed about deficits. americagan says trump's

first agenda was a crisis for the international system. >> i think it would be a little dangerous to want a more activist fed. alix: and judy shelton will be nominated to the federal reserve , along with christopher waller. the first line said, "let's go back to the gold standard." it's not just the gold standard. she has a very expensive vision. she wants a global common currency with full gold conversant see. alix: the impeachment trial of president trump kicks off next week in the senate. democrats doubling down, trying to push for what they say is more transparency. they would also like to see some key witnesses. they are looking at public comments made by lev parnas, a close associate of rudy giuliani. alix: chief justice john roberts

will preside over the proceedings. in the markets, it feels like a lot of euphoria within the equity market. small caps outperforming large caps for four straight sessions. record highs yesterday within the s&p. record highs in europe. tech outperforming as well. the 10 year yield pretty much going nowhere, despite the fact we get some issuance on the 20 year from treasury. joining me for the hour is julia coronado of macropolicy perspectives. what are you most interested in today? julia: there's an interesting disconnect right now between the way economists like me look at the world and the way investors are looking at the world. we are looking at slowing growth in the u.s., profits that are likely to continue to struggle, a manufacturing sector that remains sluggish, and global economy that remains sluggish, and yet, the markets are on this relentless risk on rally. our clients think a lot of that is attributable to fed policy,

not just the developments on the chinese trade deal. that is something the fed is going to have to grapple with. have they done too much? is this what they want to do to get to their inflation target? i think that is what we are looking at. alix: but maybe there's some green shoots in china, for example. the country's economy stabilized last quarter after slowing at the weakest based in almost -- after slowing at the weakest pace in almost three decades. industrial output and retail sales beat as well. joining julia and i is john authers, bloomberg opinion columnist. are we in a liquidity driven ?ally or a fundamental rally john: it's a liquidity driven rally. talking to people in the markets, it is very difficult to doubt that. , now widely referred to

in how itit is qe affects asset prices moved, how markets moved, and in many ways, it is one of the biggest stimulators the fed has ever administered in terms of the speed of which the balance sheet has increased. similarly, you have the ecb moving at the same time, while in china, you really did see for quite a while the pboc being , and the more -- yes hopes last year that it was going to be genuinely stimulating has largely not come true. people are dealing with macro potential instead of macroeconomic. they were cleaning up balance sheets. what has intrigued people at the move onthis year is the

reserve requirements, making it easier for banks to lend in china. i think there is a hope now, which i am not sure is all that realistic, that china is going to expand greatly. i think if china is yet again somehow -- julia: doing credit stimulus like they did in 2016, yeah. john: the last chair of the be voc left talking about -- chair of the pboc left talking about the minsky moment. if you are a central banker talking on the record, you don't even mention that there is such a thing, i.e. a moment that happened in the states with lehman. that's what they are worried about, and that's what -- julia: and they have had bank failures and failures at large firms, so they are dealing with some credit overhang. so green shoots is an interesting term. what comes next?

i think china has managed to engineer a stabilization very effectively amid all of this credit overhang. what comes next? i think some investors extrapolate, ok, now the manufacturing cycle is going to swing up. we are going to get another one of these china stimulus moments, and a good sector is going to rally. i don't think that is the intention of chinese policymakers this time around because they do know that they have real, deeply rooted troubles. thea: the greatest --john: greatest concern of any chinese policymaker is that this will endanger the grip of the communist party in china. if they face their own lehman, it really might. stability is probably just good enough to manage and stay in control. alix: i have to wonder, if it is a liquidity driven rally, does that continue?

when you take a look at the fed and what they are doing in the repo market, if they pare back what they are willing to offer, you can't get one without the other. money out anding not offering enough, then you should be selling stocks. i don't really get that. julia: well, yes. when not purely mechanical we say liquidity driven. it starts also interact during -- it starts also interacting with psychology. the put he is a catalyst, and yes, the delta -- liquidity is a catalyst, and yes, the delta is leveling off. we will hit a plateau in the balance sheet. does that mean that the risk rally just ends on the next day? i don't think so. i think we probably need if in the middle catalyst to refute the eye more optimistic scenarios. when i talk to investors, some of them are more bullish than the average economist.

they actually think we are going to see potentially faster growth this year than last year. you would need that to be refuted by the data. john: dangerous analogy here. i am going to make a comparison to the year 2000. before i go any further, i am not saying anything like the scale is going to happen, but something conceptually similar on a small scale could. bianco,ncker -- jim friend of this show, put out a showing whatiece the fed extended to the repo market, what happened and what we are now all calling not qe is almost identical to what greenspan did to tie through -- to tide through y2k. obviously there were other things going on, but the moment the nasdaq went truly, utterly

was the moment the fed started really coming through to make sure the banks could survive whatever was going to happen on new year's eve. that they stopped their support altogether was the week the nasdaq fell 25%. [laughter] john: no, i am not going to suggest we are going to get the market fall 25% when this ends. the similarities are clear. we have a generally strong stock market anyway, which, if you've been listening to me for year, i've been saying it's too expensive for years, and it has continued to go up. [laughter] extremelyent very upwards that does overlap with not qe very clearly. correlation doesn't prove causation, but it is quite an interesting coincidence, and it

is hard to find other reasons for it. i don't think the trade deal is remotely as important. julia: no, although it did take a big downside risk in terms of the escalation off the table. the other thing that the fed did in addition to the liquidity, they really raised the bar for raising rates. they basically told us, we really need to see an inflation bogeyman to take this insurance cut back. that is an important piece of this in addition to the liquidity. alix: but you are also not going to get three rate cuts this year. julia: that's right. in terms of deltas, you're not going to get easing, but you're also not going to get tightening, so in terms of putting money to work, what you do? i think part of this is the liquidity and part of it is a reaction function issue. the fed is doing its whole policy review this year, and part of that is to get inflation up, and part of that is to be

structurally dovish. i think that's another piece of it, which means it could maybe not stop on a dime if people no longer fear that the fed will respond to an asset bubble by taking some of it back. john: one final point into the mix, bear in mind that both the bank of england and the ecb are under new ownership this year, and the ecb is undertaking what appears to be an even more sweeping look at exactly how it behaves and what its targets are upng to be, which could end with all kinds of intriguing dovish configurations, green bonds, excuses to breakeven, governments start spending money. in the u.k., they've got brexit coming into existence, which means there are some similarities even to y2k there.

there will be various shocks to the system which need to be cushioned. opportunityts of for further liquidity into the system haven't yet been priced in. alix: great conversation. john authers of bloomberg opinion and julia carr and otto of macropolicy perspectives -- julia coronado of macropolicy perspectives are books this new with me -- are both sticking with me. this is bloomberg. ♪

♪ alix: earnings season kicking off with big banks posting record profits. president trump said give me thanks because it was that good, sonali. sonali: thank you so much. today we have blowout numbers by the begin doesn't banks. equities weak

performance, we had morgan stanley shooting through the roof with fixed income performance. by absolute terms, jp morgan is still king with a whopping $3.5 billion in fixed income revenue. what does that all mean when it comes to profitability? jp morgan and bank of america, the big consumer banks, leading by a landslide when it comes to profitability. investment banks further behind. bank of america holding strong on profitability, even though they are expecting net interest income to be a little lower. everyone is expecting the consumer to be strong. goldman is behind the pack, but they took that big legal charge planning for their 1mdb charges ahead. where does that leave the two big investment banks, morgan stanley and goldman sachs? there market caps have been battling the last few months. morgan stanley surging by the most in 17 years yesterday, beating goldman. we will see where that leaves

them walking into the next quarter. alix: thanks, sonali. still with us on set, john authers of bloomberg opinion and julia coronado of macropolicy perspectives. did the european banks' lunch? john, you had a note out overnight saying, "the six months bund yield impulse is the highest in three years, a sharp decrease in yields has followed." not so good for banks. john: stop me if you've heard this one before. [laughter] john: we've been worried many times over the last decade the china is not going to be able to engineer a landing this time. the number of times we've expected european banks, this is finally the time they can start. they must have hit bottom at this point. alix: they are just too cheap. the: they are now up to

psychologically important level of trading for 60% of book. they are trading for more than half their book value. obviously, people are much more confident about them than they were before. again, the problem is obviously they had any number of different problems entering the crisis anyway. they came in as very bloated banks. withdo have this issue incredibly low yields in europe, which makes it very difficult to operate. if we see another move down in yields, which is not what people -- we've just been talking about , the risk is that the market generates its own response, that we will have a check back in yields for a while, and that will create yet

more issues for european banks. julia: how does european banking reform or the lack thereof play into this outlook for you? john: i think european banking reform has everything to do with why we got into this trouble in the first place. many years ago, earlier in my career, in the 1990's i was covering the merger wave here in the states, and i was working for a newspaper where, back in the home market, nobody had more than about four banks, all of them being european countries. nothing remotely like glass glass-steagall had ever happened. certainly countries like spain regarded banks as national meant enteringh the crisis -- julia: systemic risk.

john: they were doing all kinds of dumb things. it was the idea of the north atlantic financial crisis, where americans sold lots of really bad loans and dumb european banks bought them. these are the two sides of what created 2008. people in wall street at the time were always joking about dumb german banks that would buy this stuff. alix: oh gosh. john: these are the charming, idealistic people i speak to for a living. [laughter] john: that very much is part of the problem, that unlike in the states, the european banking bloated,s so big, so that it was arguably not only too big to fail, but too big to rescue, which is why hit has time, and a long

gifted us euros in credit crisis, the second leg. julia: several legs. yes, which is why the european economy has performed so much worse than the american one the last decade. julia: yes. i mean, we've had a lot of mergers ourselves. our banks are doing very well come up with big -- doing very well, but they are very big and very consolidated. alix: there's a loan growth thing that is maybe not happening in europe in the same way. john: there definitely is. alix: john, thanks a lot. it was lovely to have you on set. love reading all of his columns. john authers of bloomberg opinion. julia coronado of macropolicy perspectives is sticking with me. next week, we will be live from the economic forum in davos. we will bring you the heads of the biggest banks. that's an all-star lineup for

you. coming up, a bellwether for industrials posting its best sales growth in three years. results andenal's what it means. this is bloomberg. ♪ ♪

viviana: this is "bloomberg daybreak." bayer is on the verge of settling more than 75,000 cancer claims over its roundup weed killer. saying heen feinberg is cautiously optimistic a deal will be reached in about a month. he says the number of cases may have doubled in california. they resulted in combined damages of over 101 $1 million. shares of gap are rising. it says it will no longer seek to establish its old navy chain as a standalone company. the original premise was that old navy's fast growth wasn't being reflected in gap's stock

price, but performance has deteriorated. alix: thanks so much. i am taking a look at fastenal right now, down about 2% in premarket, posting its weakest quarterly sales growth since 2016. brooke sutherland of bloomberg opinion joins us. what were some of your biggest takeaways? brooke: certainly the growth is troubling. i think why that is standing out to me is that you have really seen this run in industrial stocks in the past -- in the 2019.alf of you have to remember that the slowdown we saw was not actually that deep. it was relatively shallow, particularly at fastenal. you never saw that sales growth number go negative. what that means is you will not necessarily see a rapid spike upwards. you will probably see a slow, sluggish growth environment for 2020. a lot of these companies are talking about a recovery in the back half of the year come about of course, we have a

presidential election, and there are a number of uncertainties baked into that. nobody knows what is going to happen with the tariffs still in place on $360 billion of chinese imports. the latest is that those would not be removed at the earliest until the present to election. there are a lot of things holding back capital spending, and the stocks are not price for that. julia: so you see this more as a sector issue and challenges, not a company specific story. brooke: they certainly have their own company specific issues. that is there margin disappointment. all of the industrial distributors have had to completely change their business to cope with amazon. they have on-site professionals to help you with all of your distribution needs, but that is expensive. that is a hit to margins. what has offset that for investors is that fastenal has been able to maintain their operating margin because they

get their leverage from factory floor footprints. that didn't happen this quarter because they saw weaker sales growth. can they maintain that dynamic if they don't have the growth? the fact that they did not get that is concerning. alix: especially if everyone is expecting something else. really good analysis. appreciate it, brooke sutherland of bloomberg opinion, and julia coronado of micro policy perspectives is sticking with me. coming up, i will speak to mckinsey's leader of global practices. this is bloomberg. ♪

alix: this is "bloomberg daybreak." i am alix steel. a record high yesterday. european stocks near a high. some of that being led by tech. google with a $1 trillion market cap.

you also have earnings that have been coming out throughout the morning. other as is set classes -- asset classes, retail sales continuing to fall off a cliff. continuing within the bond market, a 20 year issuance will be coming on. >> holy cow. alix: the number two -- you have housing starts blowing it out of the water. coming in about 17%. you are building permits a little bit weaker, down by 4%. the starts, huge, huge move there. julia coronado of macropoll is si perspective, do you normally see that? julia: that's a crazy number. let's be careful. you often want to look at the wedge between starts and building permits. there always is a little bit of a wedge. this is -- permits are coming in at like 1416. housing starts are at 1600.

that's unusual. there might may be noise. the broader number has been housing demand an construction activity have been improving on the back of huge drop in mortgage rates last year. alix: how much of the starts and permits in the early cycle part of building a house will continue if we don't get three more rate cuts this year, for example? julia: i think the drop in mortgage rates usually takes a few quarters to sort of seed through. we have a positive impulse from housing to g.d.p. growth this year. we had come off three years of housing small declines and with the drop in rates, it turned around midyear last year. it's not like a rocket ship, although this number is a rocket ship. but it's sort of a gradual, positive tailwind to growth. alix: what kind of numbers do usually at for housing,

signify -- like what kind of numbers do we need to see? julia: we see sort of the low single digit growth in both existing home sales and housing starts. i think that's a good number and a reasonable snm to expect given the demographics. we have millennials, homeownership rate has improved and come off the lows. credit is still very tight. it's not like that dynamic that we saw last time around is starting to take hold. we haven't seen the leppeders and that breakdown -- lenders and that breakdown. you can't get more momentum than low single digits. alix: really fun to go through here, this means residential construction added to fourth quarter growth for the first time since the end of 2017. so it's a positive. builduppoint about home

construction of single family homes rose the highest since mid 2007. that can be a hige shift for the market. julia: this will add to the current mood in the market. we have seen that. although there are certainly generational shifts that have proven sticky. millennials are getting married later, having fewer babies. there is more multigenerational housing. it's more complex. so i don't think the trends are going to turn on a dime. we have seen good labor market, that leads to good formation and good housing dynamics and demand for housing. alix: so we want to take this opportunity to look at one structural shift within the market to pay attention to. that's climate. the mckinsey global institute

released a new report of climate rick and response, which highlights how climate change creates new risks and uncertainties. one of the areas they focused on was florida. if you take a look at estimates, losses from flooding could devalue homes exposed by 30%. joining us now is one of the authors of the report, dickon pinner of mckinsey and company. co-author of the report. i saw this yesterday. it really stood out to me. can you walk me through how you ot to the number, the findings of that? >> the report looks at the physical risks of climate change and what -- by climate change, we mean things like increased heat and increased flooding from sea level rise, storm surges. those chronic effects as well as things like hurricanes which people are more familiar with.

we try to look at the socioeconomic impacts to people, to the economy, and to nature. so all those things. just stepping back, i think what really surprised us is the agnitude in proximity. hundreds of millions of lives, trillions of dollars of economic activity and national systems are all dependent op to some extent if we do nothing are at risk. we looked at florida as an example of coastal real estate. we looked at nine case studies around the world. it's looking at florida as an example of coastal real estate. what makes florida so interesting is if you look at the vulnerability that it faces even before you put climate change on top of it. economically it is vulnerable because it has 1/5 of g.d.p. is linked to real estate. 1/3 of taxes come from property taxes.

physically it's also very vulnerable because you have sea level rises, which can cause flooding, and you have heat and humidity, etc. and then demographically it's quite exposed because you have 1/3 of all properties that are close to coastal areas and i think something like 27% of homes are on a 100 year flood plain. when you combine all those things and add climate change, flooding, we find that just by looking empirically at what the correlations have been historically between house prices and flooding, you could see as you said for exposed areas something like a 15% to 30% devaluation by 2050. this is if we do nothing on those exposed regions, $30 billion to $80 billion but potentially larger impact to the state. julia: are the insurance companies on to this yet? dickon: that's a great question.

i think one of the findings from the report is what the physical impacts may be in the future. financial markets will start -- they will start to bring those impacts forward. in a way, that is a good thing because you want the price signal to be able to turn where future capital should go to protect the assets you've got. it does potentially expose some frailties to the underlying financial market. alix: if i am a real estate developer am i going to want to put money into that area today? when you talk to your clients about insurance, what do they say when you tell them these kind of stats? dickon: i think this example is just -- i think if you step back what's really interesting is every piece of infrastructure we have built has been built with a certain set of climate conditions in mind. now the climate is changing

faster than anything we have seen for millions of years and therefore it makes you call into question all those assumptions. so i think what it means for financial systems like insurers, for example, they need to be thinking through what are the orward-looking climate impacts versus relying on decisions of the past. there are other interesting areas, like in insurance for example, people expect or think that the insurance companies are holding the risk. actually most of the policies are one-year policies. so the people -- the duration mismatch. it's the homeowner and the question is who holds the risk? is it the insurance, reinsurance, national insurance, federal government? so this notion also of risk transfer and who holds the risk, if you are the homeowner, you may be experienced two things at the same time. your insurance costs could be going up and your house price

could be going down. that causes people to think -- >> your point on the tax base is interesting, too. florida is a state that doesn't have an income tax or relies more heavily on property taxes. so it really is sort of a domino effect for support for infrastructure and basic government service provisions from these valuations. alix: this would affect the municipal bond market, too. the yields will probably be higher than they would have been otherwise. dickon: that's spot-on. what we do, we have hooked at the nine case studies across a number of these physical systems, looking at agriculture, real estate, infrastructure, i think what it shows is the direct impacts we try and take a shot at quantifying but it's the second, third or fourth knock on effects that may be hard to predict and that may be a lot big than the original.

what we are hoping is the way i think about it is the bad news is the change is really quite close which shocked us but the good news is the impacts are quite close, so they're now in everybody's time horizon. i think what we have now is a set of tools and methodologies that allow you to know where things could go and that creates a road map if you like for decisionmakers, whether they're investors, regulators and companies to take decisions and deal with the problems. that's the good news story here that you can do something about the problem. julia: quantify the bad news. alix: good way of phrasing it. dickon: in the future, although the impact of climate change is today, because -- alix: there's still time, you are getting at. you have to get on it. dickon: that's right. you have to protect what you've got, and longer term you have to take risk out of the system by

not putting more emissions into the atmosphere. alix: really interesting. thank you so much, dickon pinner. julia coronado. we will be sticking with me. we want to give you an update with viviana. viviana: it was the weakest economic ention pangs in -- expansion in china in two decades. g.d.p. rising to 1%. hat was in line with beijing's target. chinese investment, a sign the stronger economy could be underway. we move to capitol hill. there was a rare show of bipartisanship and a major political win for president donald trump. the senate joining the house in passing a new trade agreement with canada and mexico. last month democrats got behind the deal. this was after a year of wrangling with the trump administration. the biggest roadblocks were on labor, the environment, and enforcement. the pentagon now says americans

were hurt in those iranian missile attacks on bases in iraq. that contradicts president trump's statement. the attacks were launched in retaliation for the killing of a enior iranian general. bloomberg powered by more than 700 journalists. this is bloomberg. alix: thank you so much. i want to point out again, killer housing starts really surged. 17%. the highlight was construction of single family homes rose to the highest level since mid 2007 of the equity markets, hitting a high. coming up, it brought you the irishman, stranger things and marriage story. netflix is among the biggest names out with results next week. mark boidman in today's bottom line. bloomberg users can interact

with us. check out all the charts. this is bloomberg. ♪

♪ alix: you are watching "bloomberg daybreak." viviana: k.k.r. taking a 6.6% stake in dave and busters. k.k.r. saying it had discussions with the company's management about business and strategy. the buyout firm also may have talked with dave and busters shareholders. it may take certain actions ncluding changes to the board. they'll shrink their north american business. demand from shale producers is dropping off. schlumberger says it's confident it can keep improving cash flow

and fourth quarter earnings beating estimates. it's a marriage made in marketing heavens. netflix and ben and jerry's teaming up for a new ice cream flavor. peanut butter ice cream with lted pretzels swird in fudge brownies. the two companies hope you'll grab a point or two the next time you stretch out on the couch to binge watch netflix. that's your news flash. alix: thanks, viviana. we will loo look at companies worth watching. we will focus on netflix. joining us now, mark boidman, p.j. solomon, and julia coronado is still with me. you know you've made it big if you get an ice cream named after you from ben and jerry's. mark: bold move by netflix. alix: where do you feel like

there are pockets of strength and pockets of weaknesses? mark: strength, they spend on content. they spend more than anybody else on content. netflix is spending $20 billion on content in 2020, more than every other streaming company put together. alix: why is that good? you take a look at the cash burn and that might be bad. mark: if you think about the subscribers, this is the opportunity. others are taking a bet on their libraries of content. julia: like disney. mark: peacock which will launch this summer. they can rely on historical content, but consumers want fresh content and differentiated content. netflix continues to be bold. julia: i have been wondering how the breaking off of new streaming services is going to -- how the consumer will react to this. everybody is not going to shell out $10 a month for every dr for 20 streaming services.

you will have to have a differentiator. mark: if you think of the consumer, the consumer is having to adapt, do i want just streaming services? do i want cable? we think the consumer will be willing to spend more. yes, there are studies that say the consumer is not willing to spend more than $20 on streaming. alix: in terms of what they're buying, walk me through what they're buying, why and what difference does that make? mark: we advise netflix. they acquired billboards. you think about billboards and streaming, netflix is bold. trying to reach consumers and directors and producers to get the best content on television. it's a reason why they stepped out of just their content streaming and said let's buy billboards. alix: if they win oscars, what

does that do for them? mark: it's big. if you think about content, it is the differentiating factor but it's also what will attract people to streaming. it's also, when you think about advertising, the consumer is willing to accept advertising. so peacock unveiled yesterday, a streaming service that will be focused on advertising. you have something like netflix, just streaming without advertising. julia: hulu is the example of the one that has advertising already, right? mark: that's right. you have options. there are consumers who are willing to spend money on streaming and others who say i don't want to spend money but let me try it. we think this is good. peacock coming in is going to be helpful to someone like netflix because it's going to -- julia: we don't have any more of that. mark: it brings consumers from cable and pay tv. if you look at the last 24 months, 40 million people cut

the cord. the opportunity for more consumers to migrate to streaming, disney plus, same thing. it's helpful to netflix. alix: i cut the cord like two years ago. i don't even realize it's gone. my husband freaked out. i said no, it's time, easy. when you look at the stalling user base growth, content is huge, expansion an all of that. but at what point do we reach the numbers, what is the adoption rate where we stall out? mark: we are far from there. i think netflix realizes this. 165 million subscribers already. international, huge opportunity. this is the point. netflix continues to spend on content. you think of cash burn. they reach certain subscribers, content becomes a fixed cost. you reach that threshold. frankly netflix has such a lead. julia: are they developing content in those markets, local content in, say, asia, latin

america? mark: they are. international is their strength and they're bringing that content back to, for example, north america to the united states. we are watching content that's been created all over the world. alix: i want all the british shows to come. mark boidman, thanks a lot. really appreciate it. i want to point out what happened with the housing market. that's propelling equities higher here. housing starts up 17%. julia, you are emailing clients right now as we are talking. what is the question everyone is is asking? julia: this is unusual, looking at the chart there, the magnitude and the disconnect between the starts and permits. sometimes you get seasonality issues. sometimes with housing you get regulatory issues that come into play. 17% ss would be that the month on month pop is not representative of the trend. if you look at building permits, they're trending up nicely.

i need to dig into the details. alix: good perspective. julia, always a pleasure to have you on the set with me. julia coronado. coming up on the program, all about transports in this morning's technically speaking, a closer look at the stocks. if you are jumping into your car, turn on bloomberg radio, channel 119 and the bloom beg business app.

alix: time for technically speaking. set you up with trades of the morning. he joins me now. listen to bill, transports all day long. start with the rails and c. is s.x. bill: c.s.x., revenue did miss estimates. shares down 3%. trend is is higher since august. it's in this july gap, though.

.ook for potential today 74 74 probably your first important c.s.x. alix: we go to rail and other modes of transportation like trucks. j.b. hunt beat some estimates. bill: missed the lowest estimates. that stock is down 5% in the premarket. potential support around 113. that's february 2019 high. probably good support around this 113, 114 zone. if that fails look for around 111. alix: looking at international, what do you see? >> they have preliminary estimates missing lowest estimates. that stock is down 7% in the premarket. business trading range since april. failing at the top of the range. it's not up today. down 7%. support probably around 72, down

here, the october lows. but first support probably 75. alix: is it still a thing? are we done or have we moved on? >> it still holds an effect. maybe it's a red flag. bad numbers today. alix: all right. thank you very much. hat does it for me here. the global head of strategy. we are seeing equity buying after the killer housing starts number for december. this is bloomberg. here, it all starts with a simple...

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series of all-time highs and big tech rallies alphabet. with global economic data stabilizing, china is showing some strength. with 30 minutes until the opening bell this morning, good morning, good morning. here is your friday morning price action. 500. advanced on the s&p treasury a 20 year issue coming up this year. we will talk about that a little later. later. another round of record highs. >> the economy is at a steady pace. >> seeing more stability. >> bottoming out. >> we are derisking the system. >> a more constructive environment. >> the consumer is strong. >> incremental escalation. >> could lift inflation expectations. >> no inflationary pressure. >> more likely a cut than a hike. >> a lot of