tv Bloomberg Daybreak Americas Bloomberg October 30, 2018 7:00am-9:00am EDT
characteristic, he has a great deal coming with china. nasdaq 100 has its worst month since 2008 as stocks sink, leaving the s&p rudderless. g/is dividend. it's the have and have-nots of earnings season. we will speak with one of the winners. david: welcome to bloomberg daybreak on tuesday. we can't decide what to look at. there are so many. i'm looking at coca-cola. they are up 14% on their earnings per share. the stock is up. they beat revenue. they are up 1% in premarket trading. alix: the quarter looks really great. it looks like the stock indicated up 3%. earnings are $.25 per share.
the stock is popping 4%. they raise their earnings forecast for the year. they actually seem to have pricing power on international revenue. north american revenue was a little bit light. they were able to improve their gross margins because of the product cost improvements and lower promotional activity. they were able to charge more. david: it's catching up with where you were. finally, we see some pricing power. you wouldn't have thought it would have come from a company like under armour. this is what happening. in the markets, it was a wild day yesterday. theas a 103 point swing for s&p. futures are up nine points.
do we stay there? will that be the case today? euro-dollar is holding up despite the fact that certain quarter gdp is the weakest in four years. italian growth stalled. inflation rose. higher inflation, weaker growth. 10 year yields in the u.s. are up to 311. the treasury is refunding, we've got an interesting conversation about how much the u.s. will have to borrow. kurt is up .6%. david: they are going to have to borrow a lot. it's time for bloomberg first date. we are joined by lisa abramowicz. one of the big events was president trump giving an interview to fox news that the market reacted to. this is what he said. >> china has been really hurting our country economically.
that one.ng to win i can make a deal right now. toid: the markets seemed sigh relief. president trump said we are going to get a deal. lisa: he's been considered a deal is positive. i don't know how much credence you can put in any market moves on the heels of his comments. there were reports that president trump was thinking about imposing additional tariffs on china if they did not have productive talks. the market declined significantly on these headlines. this is nothing new. we knew this was going to happen. this highlights the uncertainty and unease that we are likely going to see escalating trade tensions. markets are not buying. that is something that people are not buying.
the markets do think the u.s. will be more resilient. david: we can blame you for being a former trader. they seem to be reacting to everything all the time. >> donald trump didn't say anything last night. he said yes, we could have a deal now. he said absolutely nothing. what he did say was we could have a deal at any time. china is not ready. i'm taking this past the midterms. i'm going to show up at the g20. it was a democratic house, i will blame them. alix: the market in china is doing its own thing. u.n. ae the dollar stones throw away from seven. david: not just buying, they said we are buying.
it's interesting. they are admitting it up front. alix: no one seems to be buying tech. look at the nasdaq 100. you are looking at the worst month in a decade. 2008, a month you don't want to be compared to. it's not just tech. nothing is taking its place. it's supposed to be financials. lisa: why? we are moving to a slower growth environment? is this a higher interest rate regime taking some of the luster off the highflying momentum stocks? is this a growth story? suggest it's an interest rate story. you might disagree. this: not completely. lisa: netflix discovered when it came to new subscribers, when
it came to growth. they had a home run. they are still down 20%. even a growth story isn't flying anymore. if you want to look at profitability, amazon delivered. this is inconsistent and it leads to some other questions. david: there is a fair amount of regulation. a u.k. announcement has taxes down the road. the eu has taxes. thence: it's not a big amount of money. it is setting a trend. when you go back to the trade all ofall of tech gets their feed from southeast asia in china. if this escalates further, future growth does not look good for tech at all. i do agree with you on the interest rate story. they are going to go up no
matter who wins the election. alix: financials and not taking the lead from tech. -- i thinkink you you are going to need something substantial to happen in the interest rate story for the financials to benefit in the short term. everyone loses. i'm looking at the futures market, once again we see futures are higher, but lower than they were before. alix: how do you get rewarded for earnings. ge/their dividend. the new ceo, that stock is up 1%. getou beat, how hard do you rewarded? lisa: i love that the way to win approval is to deliver below extra expectations and cut your dividend and everyone cheers. if you beat them, it's dubious
if you will be rewarded. the number of shares that popped after earnings that have met expectations is the lowest ratio since 2011. you are really not seeing investors chair earnings that are good. people are worried about the future. they are worried about the unknown, the trade could put a damper on it. david: you were talking about this. the street loves a write-down. it's amazing. everything comes back to expectations. it's not looking very pretty today. alix: how is this better than yesterday? they ripped off band-aid after band-aid. everyone knew they were going to have to cut. they wrote off $22 billion. at some point, somebody made a very large mistake.
they are splitting the power unit into two units. it can't get any worse. david: how does that work? vince: i don't know. it makes it easy to identify the loser. i can identify which one is slipping faster than the other. david: they are going to retain cash. alix: it's his first foray here. he did something. we have to give him a little bit of time. thank you so much. we will speak to the bp cfo after their order crushed estimates. one of the have-nots in the market is chesapeake. that stock is down in premarket.
a $3.9 billion transaction. operations. the street is not going to like this news. you chesapeake is paying down debt. that's not going to be something that the street lights. craddick?this indocin --is a broader idiosyncratic. is it a broader issue? alix: it's hard to think that they will speak to the whole energy industry. they have so much that they have been winding down. at some point, they need to grow. i don't know if that's indicative. it seems like companies are raising or increasing their. capex.
taylor: this is your business flash. insurance is the short seller. a to the hong kong stock it ain't that they will seek approval to buy back 10% of its stock. billionld amount to $17 in shares based on market value. it would hurt bearish investors who made it the most shortage stark in the benchmark index.
net income increase of 4%, nearly $2.3 billion in the third quarter. ae biggest bank is up despite drop in fixed income. the cfo spoke to bloomberg in paris. >> we are maintaining the return on equity targets. we are well-positioned to do that. what the evolution will be, we will have to see. it's the profitability. taylor: they are along major lenders awaiting brexit. the situation can be manageable, and hopes for a rapid clarification. italy's economy stalled for the first time in four years. it put pressure on the ambitious spending plan. the government was to increase employment and let workers retire early. that would let the deficit
widened next year. that's the move the european union has rejected. that your bloomberg business flash. earnings was out with today and it missed on both earnings-per-share and revenue. that was almost beside the point. we are joined by karen of bloomberg intelligence. , splitting the power unit seems to be occupying us. karen: people were not focused on the earnings. he did not give guidance. he will do that on the call. that's the new ceo, that's what they generally did. the dividend is not a surprise. he gets almost $4 billion out of that. the write up we knew about. how are split into two businesses, i'm curious how that solves the problem. maybe he can work on it faster doing that. two of the big businesses are doing great. they are exceeding expectations.
he needs that to carry him. it's not all bad. david: when you split things, you go good company, bad company. is that was happening here? they are taking the gas part and put it over there and in managing the rest of it. karen: it's not failing. i think it will make it quicker for him to take action. he talked about a heightened sense of urgency. they announced multitier fixes. david: that means selling it off? karen: they can't sell it yet. i think they will fix it first and he will figure out a way to spin it. he's got to make the bleeding stopped. he is still chasing a falling knife. alix: health care did really well. can this continue?
karen: a lot of companies have reported single-digit organic growth in aerospace. that doesn't look like that's going away. health care is economically sensitive. that's a 4% growth right now. those of the two of his -- the biggest businesses. david: is this a down payment on the planet? and when do we get the plan? karen: he said we will give you details in 2019. people are going to pull on him to get more detail. i think he will be measured because he needs more time. alix: let's the one thing you would need to see to have confidence? karen: i was like to know how is he going to fix that monster? is it just capacity? off 12% already laying of the workforce.
that's the real problem. the other thing is cash. people are worried about the rating. they have $4 billion in cash from the dividend. we are getting more business -- more cash from good businesses. alix: karen, thank you so much. happy ge day for you. when in the trade war with china, that's what president trump thinks. is it true? that's next. this is bloomberg. ♪
i could make a deal right now. they are not ready. david: we welcome the chief asia correspondent for being with us. is he right? is he putting a lot of pressure on the government? is that why they are taking that to shore up their economy? morning, we had the currency heading toward a decade low and getting killed. pressure onre is the currency. the negative overall for the economy, policymakers are having to make issues. the economy is feeling pressure. that settlement did turnaround after the comments. can open negotiations going forward, that will lift sentiment.
a possibility talks don't go well. that would have more downward pressure on the chinese economy. we know the president has done things to confront china. are they doing anything to hold an olive branch out? enda: they have said from the start that they are willing to come to the negotiating table and make offers to buy more goods. are not forcing the sharing of technology. they have been burned on a couple of occasions with promises of deals that did not transpire. i think there is a sense they will approach these talks with a degree of caution. they may be willing to make some concessions, they are not going to foster their redline. that is their aspiration to
create a world leading high-technology driven economy. they are willing to make offers. it's probably in their interest to do so. they have their red lines. that's for the crux of the negotiations will come. david: thank you so very much. on, buttrade war rages so does the bleeding in the u.s. equity market. this is the other big story. you can see just how dismal the performance of these highfliers has been. joining us from boston's art hogan. question, if we lost our leadership in the market, what happens? long, this has been led by technology. when technology fails, you see how far the stocks of moved.
over the summer, we lost leadership in semiconductors. that got amplified in august. there was a warning about demand. one of the leading groups is losing some of that momentum. that bled right into the social media names that are coming under regulatory pressure. you combine some i connectors and social media, technology starts to fall. we have lost technology in terms of leadership for a while. i don't think it's forever. right now, it's hard to see when that stops. you should be buying value. you should be buying energy and financials. that has not happened. utilities and the best performer despite higher yields on the s&p. what do you do?
art: this is one of the things this been going on for eight years. if this iso know going to be what results. i don't think so. what will resolve this is finding a place for the market has checked enough boxes. we are in a correction in a bull market. what will happen is intermediate rotation. you mentioned utilities and staples,sables -- investors are feeling cautious right now. they are looking at trade policy. the better investment is to move into cash. i do think this is something that will work itself out. the problem is we've got two sets of policy that have investors nervous. fear thepolicy, those fed is agnostic to anything going on in the world regardless of what's going on in the
economy. look weak.using they are not close on china. any resolve on either one of those policy concerns, technology picks of leadership. alix: art hogan will be sticking with us. coming up, bp top estimates. they were of the most in the year. we will speak to their cfo next. can this continue? this is bloomberg. ♪
now futures are up about .3%. european stocks are flat. banks are getting hit hard. gdp of that is the eurozone coming in light and growth stalling out. it was the weakest in four years. you have inflation moving higher in germany. classessee interactive playing out. the euro is down .2%. italy is selling across the bund market. selling on the back end of the margin here in the u.s.. crude is off by .6%. earnings is the story for the market. david: they are reporting adjusted earnings per share. that is compared to $2.76. we don't have that on the big revenue number. we are looking at the top line growth and the margins.
remember what happened with caterpillar. they had a beat on earnings-per-share, but they are worried about margins because of material costs and a slowdown in china. ons far, they have beat earnings-per-share. alix: just remember that cummings got hurt along with caterpillar. earnings, bpaquon is having its best day since 2016. earnings are really crashing it. they smashed estimates, giving them the confidence to fund its shale oil deal with cash instead of raising equity. joining me from london is the ceo. thank you so much for joining us. congratulations on the quarter. let's break it down in terms of the confidence you have that these good conditions will stay.
you are going to fund with cash that buyout from bhp. >> we have seen prices are firmer. seelast time we spoke, we absolute stock levels globally in the united states down below the five-year average level. strong quarter that is built off the previous quarters. the finances are strong enough. we have the optionality to use cash rather than shares. it's a much cleaner transaction now. it may go through that. we will come back down again next year. alix: how sensitive is that going up and coming down in the rice range. is anywhat we have said number of different scenarios could play out.
$17 is a good price right now. if you lookhead, where stocks are and where demand is, we don't see as much production, but we expect that to ramp up. the price is underpinned. we are still assuming we can break even at $50 a barrel. note,in a short-term there are so many uncertainties. what the oil price that makes you rethink the plan? brian: the transaction was $55 per barrel. we are about that. everything we see from the assets we have looked at and we're looking to close tomorrow, that would leave us in a more positive sense in terms of the assets we are requiring. i think what we have demonstrated over the last eight years is we have been able to
liabilities, and oil price that went from $110 down to $28. alix: when you take a look at earnings, what's the level that you wouldn't be comfortable with? brian: i think we have a huge amount of capacity. 30% is a large number. what you get up into 40, you start to get uncomfortable. either way, if we fund through cash or shares, the destination point is not objective of itself. you saw those growth plans come through in the third quarter with 7% growth. --we stay on the project theectory, we are keeping
capital flame in that tight range. we will have surplus cash that will allow it to come down. alix: let's take that investments in two parts. you only completed $400 million. why? brian: we signaled the start of the year that it was of program that was unloaded. last year, we had $4.5 billion in proceeds. it will be the same this year. we still anticipate we will get over $3 billion this year. we will start to lock and load the $6 billion program associated with the acquisition. feels like oil companies are getting punished if they spend more. look at chesapeake today. they made an acquisition and the stock got hit in premarket. what gives you confidence the market will let you buy these assets?
brian: we haven't moved off that frame. in the assetss create queues -- huge optionality force. we believe it's quite valuable in that portfolio. we will manage that on a net basis. investors, the feedback we have gotten is very positive. alix: i meant for the companies that will be buying those assets you need to sell. can you get it done in the next two months? why would you feel confident about selling what you need to? billion, wee $3 have high confidence because it's not the kinds of assets like chesapeake. in terms of the $6 billion program, we already know we have multiple bidders on all of those assets. we are looking to break it up.
those will allow the transaction. we are confident with that sales package. alix: acquisitions, would you be looking to sell two different buyers? once the goal? brian: as i understand it, there were multiply people inside -- multiple people inside the data room. the nature of the assets we are looking to sell in the low 48's will be natural owners of those assets. we will have a streak of other options available. the day we announced the transaction, we got expressions of interest. those were around the assets on the market. alix: how quickly can that take place? brian: we expected next year. it will be a three-year program. we've got the first series of
assets ready to go. we expect to make announcements next year. alix: how much pricing power to you have to the assets are going to sell? brian: we will see when we get to market. we have a team which is hot. that is close to $80 billion in transactions. i think we have a very good m&a team. there will be sufficient bidders. normally a good position to be in as a seller. david: when we were talking to analysts, they did say they want to see accelerated divestment because of the spend for assets and your buyback program. weston the response of the timeframe you laid out. should you do it faster? brian: we have talked about bhp as being all caps and we will
not dilute shareholders. that's been received well by our investors. in terms of the disposal program, gearing up to 30% does not give us any concern right now. we are confident we will get the first disposal. alix: i want to wrap appear. that has had a blowout quarter because you were able to buy supercheap canadian oil to refine in the u.s. will haveard, you some down time at the refinery. will you be able to replicate that number going forward? ryan: we are on a steady path we laid out in 2021. millionp around $7 already on that target. there are opportunities in the portfolio.
we will go to that process. we will have five weeks of revenue not there, but we have optionality in the portfolio. think we have a lot of flexibility and optionality within the business. alix: it was so great to catch up with you. 48 have probably been up for hours. thank you so much. david: we are going to bring back our cogan. art hogan. at some point, these numbers have to convert. does this suggest that stocks might be a good buy? art: i think so. the move we see in commodity rices and oil in particular and the move in equities behind those monitors hasn't matched up. we will revert here.
stocksppens by energy going up. brian brought up to very important points. demand is robust. we got balance and supply and demand much quicker. supply is coming off line. or iranit's venezuela sanctions, we've got a global oil market that is in balance with supply and demand. let's go more broadly. one of the things we've seen this earnings season are people with the forward guidance. even if they are beating expectations, if they guide forward it hurts them. these of the number of negative earnings guidances we are getting, revisions downward. art: the two most common things in conference calls has been the strength of the dollar.
that is adversely affecting guidance going forward. that continues to be an issue. we see continued strength in the dollar until we don't. hasink the second thing been that uncertainty around trade and tariffs. that is still the second thing for guidance. both of those things are what we will have to deal with. in thegest headway market is the most uncertain trade. it gets worse before it gets better. guidance has been subdued. if you are trying to figure out what 2019 looks like, you are trying to find other sources than china or figuring how much prices are going to go up. david: thank you so much for your time today. news. have breaking autonation is out with their earnings. down 4.4%.
it was estimated to be down .8%. they did better on used vehicles. their earnings were right on the money. they missed on revenue overall. that's unchanged in the market. we will be talking about the chairman of autonation in the next hour. coming up, profits equal bonuses. employees get an early bonus. this is bloomberg. ♪
this is bloomberg daybreak. noble group is warning of another orderly loss from restructuring. the company filing shows that losses will be between $115 million. the commodity trader is moving towards completing a rescue deal that will and control to creditors who will vote on the restructuring plan next month. bank of china has announced a share sale worth $17 billion. they are asked to short capital buffers so they can support more credit with the economy slowing down. they have more capital requirements that will be in effect next year. jeff bezos has set a new wealth record. he saw his personal fortune fall by $19 billion over the past two
trading days. that's the most ever according to the billionaires index. the recordheld previously. that is your bloomberg is this flash. things onover three wall street. the french bank said the environment is complicating growth. black rock takes it. investors sees up on shopping markets. the company plans rewarding staff with special bonuses continuing the trend for a second year. jason kelly brings us through it. this is another piece to the european bank puzzle. you get barclays in one direction, now we have bnp.
jason: it doesn't feel like a happy puzzle. it feels like a sad puzzle. that and people saw solid they've been able to accomplish, things are going great. it's not so great. ap feels like it's not compliment, more like deutsche bank. the revenue growth is not there. david: we talked to the chief financial officer. this is the spin he put on it. >> this is basically what we go for, we are well-positioned. there is some lackluster environments in europe. deploying ourby resources efficiently. europe is lackluster. jason: he is not wrong. when you see a competitor being
able to do well, you think maybe this is an execution problem rather than just a macro problem. alix: let's talk about how everyone is equal. black rock is leading the plunge. you don't see the inflows. at the end of the day, that's what it is. whatsoever to stay in his we haven't tested this at any kind of downturn. jason: if you go back to the crisis, these guys were not anything near what they are now. blackrock especially. the last 10 years have been amazing for blackrock and a lot of its peers. we talked about the traditional asset manager, this expense to publicly traded alternative managers. they are making noise as well. that remains to be seen. what we see certainly in the asset manager number is the
flows are not there. they are dramatically down. david: the money has to go somewhere. jason: people could be going to cash. alix: i've heard that a bunch in the last couple of days. up, what do these guys do? jason: we don't really know. said this ismself not where we want it to be. he is been very aggressive. it will be interesting to see how they react. this leads to a trend that says we are likely to see more consolidation. david: let's go to the happy story. bank of america says they will do it again this year, $1000 to everyone making weston $100,000. cost-cutting,out
they've done some drastic cost-cutting. the number of employees is down to where it was pretty countrywide, pre-merrill lynch acquisition. alix: can i take the other side of this? you need to see the wages. that's only $500 net. i get that it's great. this is why you could see were not seen the wage goes to the stock. you're not going to see the actual increases in your wages as much. david: that doesn't make it into your basic revenue going forward. he will tell you chapter and verse of what he pays everybody. he is fairly robust. alix: i'm not saying that's not good. once the growth? jason: what's embedded in your point is this is tied back to
the tax cuts from this year. responded people who in a lot of ways. they are doing these one time benefits. they don't take effect going forward. alix: when i was 23 and i got a check for $100. it for me, it was really substantial. i would've appreciated higher wages. david: the main thing is she was 23 when president obama was president. jason kelly, thank you. you wanted to into businessweek on bloomberg radio. coming up tomorrow, an exclusive interview with marc last three. 10ing up, how trade determine the indiana senate race. this is bloomberg.
david: i am watching the midterms. here's a race that's interesting. that's the senate race in indiana. it's between joe donnelly and mike braun. trade is front and center in indiana. people on both sides of the issue, farmers and steel people. in political advertising, trade has been referenced 13,000 times. that's more than four times as much as the number two. it is all over the place. after joenger with donnelly, saying there was an -- add the showed him chopping wood. that and was made in mexico.
using aed him of mexican acts. alix: and he on was working? david: it's a very close race. mike pence is from indiana. they are fighting hard core. it is significant talk. it could go either way. there are people that benefited and people who were really hurt. alix: you never know. the chief equity strategist will be joining us. he thinks the correction is overdone. the fundamentals don't support. we will talk about why. this is bloomberg. ♪ show me movies a grinch would love.
[ bark ] nu uh, i'm picking the movie tonight. [ whimpers ] be sad, i enjoy it. show me grinchy movies. oh, goody. [ whimpers ] mmm, fine! show me movies max would like. see the grinch in theaters by saying... "get grinch tickets" into your xfinity x1 voice remote. [ laughing ] uh oh. something in my throat. stick,
there is a deal coming with china well planning new tariffs on chinese imports. nasdaq 100 heads for the worst month since 2008. the s&p is rudderless. buybacks could save the day. slashes its dividend. it's the haves and have-nots of earnings season. david: welcome to bloomberg daybreak. i am right here with alix steel. earnings are all over the place. alix: it's a better day to come in. yesterday was a wild ride when it came to the equity market. the s&p had a 103 point range. david: a lot of it was the government saying stuff. alix: why would you believe that? are we going to expect strong statements? david: the next seven days, you
will have them every day. alix: the markets are stable for now. we see buying into the market. we reversed later on today. they are up by 12 points. the euro dollar slides weaker, down .2%. lots of different stories going on. italian growth is stalling out in the third quarter. growth in three years. italy is a reformer. in the u.s., we are picking up on the margin. yields are up three basis points. the treasury announcement will be exciting tomorrow, to see how much we are going to have to borrow. steam,s picking up down down .8%. david: at 9:00, we will get a read on the housing market and the home prices index.
confidenceonsumer numbers. also, apple will announce its new product launch in brooklyn. in the midst of earnings, based but will post its third-quarter results after the velvet a. -- after the some bell. alix: revenue seems to be out. they are coming in at $3.9 billion. it will be interesting to see what they say on the call and what the consumers are spending. it looks like a solid number. david: i want to see the lending standards. havediscover in bank one tightened earnings standards. alix: are they trying to change the cycle? david: those are tightening. it will be curious to see if others are doing the same. alix: the u.s. equities are
struggling to stop the bleeding after another day of steep losses. is it time to be in cash? this is what our guests had to say. >> it's better to move into cash. >> i think what you do, this is what i think people realize, you go into cash. you now have an alternative with a 3% yield. >> we don't think it's time to go to cash. is on't think the cycle its last legs. we don't think the growth trade is dead. 2019, growthnto might be more scarce. >> i don't believe these high velocity moves to the downside. the question is where is the bottom? give it time. there will be time to pick these names off at a later date. >> what we see from some
bellwether companies is the margins. to deals the case, we'd with the caution going forward. >> now you have an opportunity to get long assets. thane bar here is higher february in terms of getting that good washout condition. i don't think we are there yet. alix: joining us is the goldman sachs chief equity strategist. it's good to be here. use of the software overdone. you said it seems to of overshot the fundamentals and we expect positive data to support s&p rebounds. the resumption of buybacks should provide a tailwind. what do you see? david: business activity is strong. the third quarter results are
showing earnings growth versus a year ago. the disconnect between what you see not just in the core results reported but 2019 is consistent with the price action in the economic data and the equity market. let's look at the selloff in the s&p 500 we've had. it has been indicative on i sm. the manufacturing index will be up 60. either the indication from the stock market are more dire or you have had more volatility that is supported by the fundamentals. that's one example. one invest in this kind of environment? it's a quality related stock the does better. that's what we have seen. we have a basket of stocks that
look at companies with high quality less drawdown risk. that's what you want to be investing in. david: stocks are always looking forward. where should we be concerned? let's throw out a couple. the housing market is softening. there might be problems on the horizon. i would note that although personal spending is up, business spending is trailing off. the ceos are going to draw the pursestrings in. david: the data would not support those statements. flows,look at the cash companies are investing $90 billion more this year than last year. almost $1king at trillion, that has increased 14%. if you look at the broad economy versus individual companies,
those are two metrics. the two measures of a general arest, individual companies investing in the stock market. if we look at the data in the market, companies are leaning into growth. thed: at some point, companies have to catch up with the economy. the economy drives the ship. that was my point earlier. if you look at the economic data, it suggests companies are looking at services and manufacturing. the stock market where is trading now would suggest and not what we are seeing an underlying economic data. the data it shows an economy that is growing but decelerating. that is a concern. we've known that for a long
time. we've been anticipating that. , most of theagers individuals with whom i have conversations are expecting this. the downside is not supported about that. alix: if you take a look at earnings revisions over the next four quarters, communications, you have materials, they are getting hit. moving forward, how do you distinguish between sectors western mark this would imply that energy should be where you go. where is the you would look for? earnings will drive stocks. in this environment, companies have low drawdown risk. the concern is by fund managers. it indicates there is uncertainty. the second derivative of economic data points are concerned about tariffs and
higher interest rates and the higher wage costs. concerns are linked to corporate margins. if we identify stable growth and return equities and low drawdown risks, those are attributes of companies that will outperform. they've been outperforming in this environment. they have done well. companies likeat oracle and mastercard, they meet some of those characteristics. alix: morgan stanley talked about the rolling bear market. here's what they had to say about the conversation. >> the economy is already overheated. the capacity is in there. those costs are feeding into businesses. it's very difficult for most companies to pass that on. is the street see is already modeling an increase in margins next year.
we are very skeptical about that. alix: do you agree with him? david: yes. i would agree that margins are forecast by many analysts are probably too optimistic. stablea of margins being is our forecast. functionle margin is a of what you had this year. that is stemming from lower tax rates. the idea of investing in a world where margins are not increasing suggests we need to look at companies that are growing revenue. where you are finding the best is in technology, which is an area of focus. given the volatility, it's important to look at the nature of the technology. we are looking at software and
services. servicessoftware and as the new defenses. think about that meaningfully. that's occurring revenue. 40% of microsoft's revenue was recurring. now it's 60%. think about the way people invest in health care stocks, pharmaceuticals. , athly prescriptions software company is a monthly prescription. people are obligated to pay your monthly fee whether it's whatever you are renting your software from it. in thismore valuable environment when the economy is decelerating that it was in a different type of environment when the economy was growing in every company was growing. that's how i would think about investing in a world where
margins are high unlikely to be stable. are better positioned than others. you mentioned that there is wage inflation. that's a good thing from a social point of view. some companies are more labor sensitive than others. sales allocated toward that. some companies are 25%. that's a vector across which people can identify individual companies. you can look at stronger talents sheets. that's another issue. rates are rising and that will affect others more than his. to stayavid is going with us. it was really i don't revenue at the same time. they cut their guidance. been know, they have
to $2.3income of 4% billion in the third quarter. income a drop in fixed that wait on corporate business, the cfo spoke with bloomberg in paris. >> we are maintaining equity targets. this is what we go for. we are well-positioned to do that. we will have to see. it's the profitability we go for. taylor: they are awaiting the outcome of breakfast. they are hoping for a rapid clarification. the u.k. plastic at google and facebook with a digital service tax. levy could raise $500 million a year for the british government. measure ined the london. the tax will target profitable tech companies, not internet or
consumer startups. that's your bloomberg business flash. david: a stock hit yesterday on the u.k. announcement was facebook. they will have third-quarter earnings after the bell. we welcome paul sweeney. as we can see, they took a hit. they've taken a hit all year long. what do they need to say? 30% sincestock is off the last quarter. ipo, this might be the most important earnings announcement they have had. they need to turn the narrative around for this story. it's all about regulatory risk, rising expenses, slowing growth. there are a lot of issues about management as well. they need a strong quarter on the top line to reestablish the narrative that this is a growth
story. they need to get out there that they have a handle on expenses and this is not a declining margin business. the rising cost fits with regulatory concerns. anderns about data privacy manipulating elections, you have a brand issue if you don't watch out. paul: it's one thing to have higher expenses with data privacy and integrity. they doubled the workforce to monitor this. they are stepping up are stepping up r&d to take care of data privacy. that's one thing. the concern that investors have is it bleeds over to the brand. advertiser start pulling back on the margin. we haven't seen that yet. the consensus is for 34% revenue growth. if we were to get any kind of softness on the top line, that
would be difficult. ofid: that was paul sweeney bloomberg intelligence. alix: that speaks to the loss of tech leadership in the market. you can see the fallout in the tech sector. david is still with us. you made the case for certain types of tech. what do you do when overall tech is moving back from a leadership position? the company you were referencing, the way we think about the market and the standard & poor's classifying them, some social media companies are classified in the communications services. these things are often perceived as tech. when you look at the different sectors, it gives you a slightly different indication. tech, companies
that remained in the tech sector. you basically have three -- divisions. within technology, software and services are the most stable revenue drivers. the reason that's important is there is a deceleration in the economy that's taking place. it's growing at a smaller place -- pace. if you go back 50 years, in 50 years, and a real spending basis, there have only been four quarters were there has been a decline in spending on software in the united states. that is what we are looking at in a world of a decelerating economy. that's valuable. if you look at oracle, microsoft, they have a certain
percentage of revenue which is a subscription basis. the second answer is what drives the market in this environment? financials are significant underperformers in the year today. rates have risen. they are returning cash to shareholders. fed inapproved by the terms of buybacks. that's a key driver. that would be one other area to think about. david: another way to divide it tech is consumer and business. a lot of the drive up his been the social media companies. i understand there have been a lot of quarters where you had growth. can you keep that going. there was a time when housing prices never went down. can't software spending
keep going? the answer is yes. the argument is it six -- existential for companies to be spending. the idea of cybersecurity is an essential investment. that's one component of it. there is the revenue stream for so many companies that the source. if they are spending more on technology, what form are they spending on? they are buying more space in the cloud and software. attribute. it grows in different ways. for 50 years, there have been this. the famous statement that software is eating the world, he stated that in 2011. gordon moore had the law in there.
maybe if software spending is most probably going to be rise in terms of the nature of it. particulareart is a growth where so many companies are making an investment. it's existential. if you don't do it, you risk your business. david: you hear it from every ceo. the biggest issue they have is cyber. thank you so much for being with us today. it's time now for the bottom line. i am watching a car company, volkswagen. porsche really drove them up. they are up 3.8%. despite all the trouble they've been having, volkswagen is leading the way up. there was a report from bloomberg that china might cut taxes on small cars. they want to stimulate auto sales. alix: and not u.s. auto sales.
i'm looking at chesapeake area --t stock is down almost 70 17% free market. this is the biggest deal they have ever had. ever. they are divesting assets to pay down debt. this is a big reversal. it's interesting to see how they spin this going forward. david: they must take they are really great assets. alix: there's a solid increase for production. david: our third story is ge. we have to bring in brooke. in her piece out this morning, thewrote the changes show ceo isn't messing around and that they will look for a different under his watch. it's what driving this principally power?
brooke: i think it's the dividend cut. cut theafter the ceo dividend by a meaningful amount. i was skeptical that went far enough. it was soaking up a sizable amount of targeted cash flow. they will come in below what they were targeting for the year. ising that down to one penny uncomfortable. they had a very large retail investor. the reality is the balance theys are so significant needed to take really drastic action and not this down. they are david: turning the company around. he said he has a big planet coming out later this year. hadhese steps give us any of where he might be going? the land wascks
laid out in june. is selling off ge capital assets. so far, he is sticking by that. this is a continuation of that message of focus. what interesting, you have a good bank bad bank situation. not all of that is bad. alix: fair point. it's not all bad. thank you very much. coming up, autonation beat earnings. we will discuss the ceo. this is bloomberg. ♪
nasdaq futures up by .4%. the nasdaq 100 is looking at its since 2008. european stocks slipping into negative territory. european banks flat on the day. you also have the bnp earnings that miss. you have third quarter gmp in the eurozone. you have growth stalling in italy. they role seems to be sell bonds. the rule seems to be sell bones. -- bonds. is theh more of this treasury department going to have to borrow? a lot. and howll they issue much will they issue will be answered tomorrow. crude rolling over. 1%.have wti off over
going to turn to automobiles. autonation sells vehicles than 360 retail outlets throughout the country. it gives us a read on where the industry is. it announced third-quarter results and the comparable sales missed estimates when it comes to new vehicles. we welcome michael jackson, autonation chairman and ceo. welcome. good to have you. looked at these earnings, it seemed to be an extension of what we have seen. vehicles whileew used vehicles are the future. michael: good morning. it is a pleasure to join you. 1.24 is a 24% improvement in eps and we are grateful for tax reform.
it gave us a fair tax rate. it will be healthy for the economy in the long run. we talked about it years ago. create anes would affordability issue for the american consumer around new ourcles and we embark on brand extension strategy and a big part of that was preowned. consumers look for affordable alternatives and one of the ways to address that is to get to a different price point. we have nearly new vehicle vehicles coming off lease the consumers find attractive. david: i want to pick up on that. you disappointed expectations on new vehicles but on preowned, you surprised to the upside. you have the service part of your business. , is thatndicating
interest rates driving that? shift,: as far as the whatever word you want to use, from new to preowned, that is an affordability issue. trucks, shift towards which are a higher price point and you combine that with higher rates. rates, are low. been 10% for the last year and we are moving down to what they are today, consumers would be excited. it is the movement that consumers have to adjust to. they are used to free money for almost the last decade. ans is a bit of affordability adjustment for them in relative terms. that is the inside. as far as brand extension into customer care business, that is working.
outperforming growth and we are double our peers and that is a combination of taking the brand we built with our expertise and scale to get to a new price point for consumers which they were not offered before, which they are embracing and is leading to growth for us. going from the specifics to the broader sector, how does that read through to the second? we have chrysler sometime today. is it going to read through some of the most recent estimates? in principle, the manufacturer is in a good position because of the shift to the consumer preference for light trucks which are at a higher price point and profit point for manufacturers and suppliers. the manufacturers are in a healthy position. i expect retail demand on new
vehicles to continue to moderate next year. they will be at a good level. commercial demand remains strong. i am not ready to predict the number for next year. it will be in the high sixteenths. at retail, less than it was this year. david: we just getting fiat numbers out right now. they had a slight beat on net revenue. also a beat on earnings per share. that confirms what you are saying, that the manufacturers are doing all right. if you are moving toward more expensive but the rates are higher, do not they fight with one another? michael: i agree. when you combine that into a monthly payment, it is higher than the last time the consumer was in the marketplace and that creates a monthly payment
sticker shock. say, irned to us and need to get something at this payment. what can i get? start talking about nearly new and alternatives. there is the shift to more affordable options underway. we can be on both sides of that equation. we will manage it. , i think it has implications for next year. profitability will be excellent. david: really appreciate your being with us. is mike jackson, autonation chairman and ceo. alix: one to recap those headlines of fiat. earnings came in better, net revenue came in better. the company is announcing dividend of 2 billion after the sale. that stock up over 2%.
terms oferesting in the implication of a struggling auto market when you wrap it into the housing market and what that winds up meaning or growth. david: in europe, it seems like the pattern is let us divest. that is what happened with the parts business. daimler is spinning off their truck business. seems like right now, in europe, companies are saying in order to deal with the challenged environment, let us divest. alix: which is a trend for industrials. david: right. it is a time for what is making headlines outside the business world. taylor: president trump plans to sign an executive order that would terminate or thrice citizenship in the united states. in an interview, the president and the move is part of effort to and chain migration. anyone born in the u.s. is
a citizen even if their parents are not citizens. the president call this ridiculous. said to visitis pittsburgh today following the worst incident of anti-semitic violence in u.s. history. he faces an uneasy welcome which is home to the tree of life synagogue. the president is preparing to slap tariffs on all chinese u.s. imports. the leaders are so expected to hold brief talks in buenos aires next month. an announcement could come by early december. global news 24 hours a day and at tic toc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. i'm taylor riggs. this is "bloomberg." thank you. for more on china, michael mckee
joins us now. city had an interesting note saying if we go through with 267 billion dollars on tariffs, you could see a meaningful impact on inflation. what are you starting to hear? michael: that is the case and you should start to see more inflation, .2%. do not forget, the rest of the tariffs go to 25% in january. the inflationary pressure. we have had this discussion about margins, how much can companies absorb of these tariffs and how much are they going to be able to pass on. david: can there be a deal? president trump said where getting a great deal and the markets reacted. they paid attention. he said he has leverage over
them and if you look at the chinese government, every day there is at least one thing they are doing to shore up their economy. is that an indication of they are suffering and make a good deal? michael: it is an indication there is pain being inflicted on china. there is a slowdown underway and so that hurts. can the chinese power through it? theirave control over economy and the ability to put up with pain than the chinese -- been the united states does. resident xi jinping is not facing a midterm election. 2000's, there was a concern about the chinese stealing and pirating u.s. software, movies, things like that. they did crackdown. ony could crackdown intellectual property questions the u.s. is pursuing. can we do anything about the deficit? that is harder. do the chinese want to make a deal? david: michael mckee, always
control of the houses up in the air. theident trump tweeting stock market is up since the election but is taking a pause. to go want your stocks down, i suggest voting democrat. they like high taxes and open borders. here for his take on the economy and how it should factor in to the election is austan goolsbee. coming to us from chicago. good to have you. austan: thank you for having me. david: is the president right? austan: seldom. one, the stock market is on path so far to have the worst year in a decade. you can see the shifting, trying other thanmeone else the announcement of tariffs, the threat of trade war, the other
things that are spooking the markets as well as a rising rate environment. my own view is that most of the time, 90% of what happens in the economy, in the stock market has nothing to do with washington. i said that when i was in the white house. i say it now. i do not think that charge will stick because the facts are going to end up proving a wrong. if we back away from a trade war, you will see some invigoration back in the markets. if we proceed down this path that we are going to escalate this, you will see the stock market keep going down. david: if you take the two-year path since trump got elected, it is pretty positive. do you think the tax cuts had nothing to do with that? we can look at gdp growth. it is faster than before. look, you mix a couple
of things there. comes into effect this year, starting january 1. great not been such shakes for the year. since trump has been in office, it has gone well. it has been going pretty well since late 2009. we are long into the longest stock market boom and one of the longest economic recovers -- recoveries in modern american history. that is the strongest side of what the president has got going. we have seen in the polling, has not proved popular. cuts the most unpopular tax we have had in the united states. they are not running on that. side of the republican party
is saying, reelect us and we will pass another cut. the other side is trying to raise issues about immigration and stuff like that. saying, let us not make it about the economy. david: the president did come in ofh a progrowth agenda deregulation and tax cuts. there is more growth. there was growth in the obama years but we did not get up over 4%. isn't it positive to have a progrowth agenda? the growth rate in 2017 was 2.2% which is what it has been for years. did, under president obama, get about 4%. we got above 5%. i hope that this growth rate we have had continues. i hope it.
if it does, it would be great. , the mostsigns worrisome are that this is a sugar high and we are going to get the stimulus that came from the tax cut for a short time and then it is going to run itself out. gdpsaw a little bit in the data of last week that the capital investment numbers, which had seem strong in the previous quarter, were pretty bad. with thed is the mess trade war with china. if both of those things take place, we could be looking at a more difficult scenario. david: i wanted to turn to something you mentioned. there is the economy and the stock market. they are not the same. mobius --o mark
talked to mark mobius and he suggested if the democrats prevail, it would hurt the stock market. listen to what mark said. democrats get control of the house, i believe this will be bad for the u.s. market wantse trump has said he to introduce more tax reforms, lower taxes for middle income people in america. if he is not able to do that, that would be bad for the u.s. you will see more of a correction going forward. and what doesight it do to the economy? are those different answers? austan: those are. i'm going to try to stay out of the business of predicting where the stock market is going to be. the reaction people have had to , that hit ---cut
that it has been negative on the political side. runningublicans are not to defend appeared on the market defendt has not had -- that. on the markets i, it has not had a positive impact. to peopleve caution saying let us have another tax-cut. am more foromy, i cutting taxes on middle-class workers than for high income people and corporations, which is what we did. magic think that is the , you gotk -- beanstalk some explaining to do. david: we have a viewer writing in. is there any prospect of a u.s. government shutdown? it is looming. experience, what do
you think the chances are? viewer, we should have been paying more attention to that. if the democrats were to win the thee, looking at the mo president has had, a shutdown would be on the table and it in somethinged about immigration or fund the wall. the president likes a confrontation, for sure. that might be on the table if the democrats were to control the housing congress. austan goolsbee coming to us from chicago. futures are in the green. we will talk about what to expect from today with julian emanuel. that is next and this is bloomberg. ♪
alix: here is what i am watching, the equity market. what is going to be leaving going forward? joining us on the phone is julian emanuel. it is not going to be the nasdaq 100. what is the leadership? julian: the leadership is stocks that have short interest. environment, if you have held short stocks, you're looking at a place prior to the midterms where we think uncertainty is likely to be a positive. those stocks are worthy shorts will be covering into further weakness. we saw the beginnings of that yesterday. where likely to see more today. etting on equities that have short interest are going to after cover different. if we do not have tech leading,
what will? julian: it is. so happens, because of this dichotomy between value and growth, we find a lot of these in low month multiple stocks that have high growth rates for 2019. you see a lot of that in energy and industrials and financials, given the fact that the yield curve has shown stability, we that worke are themes into 2019. alix: what we've seen is confusion and markets. 103 points in the s&p. it continues to roll over. what does that tell you about liquidity and how you can protect yourself? julian: it is violent. whichday's range, 3.8%, is happened on less than 2% of days, was more extreme, more like a vix closer to 100 and 60
because you had so many swings. if you're looking to add to ,ositions, which you should be you want to buy weakness. you do not want to chase strength. if you're looking to lighten up, which again, we do not think you should be doing, you are going to get these rallies intraday to where you can do that. alix: i love talking to you. thank you so much. it makes for interesting points. that does it for bloomberg daybreak: americas. coming up, jonathan ferro. this is "bloomberg." ♪
jonathan: coming up, the biggest reversal in three years leaving -- leaving the s&p on the brink of a correction. , saids. raises the stakes to be preparing tariffs on all chinese imports. the pain for tech extending into a fifth straight week. the attention turning to facebook. futures rolling over again. we are positive by .1%. the fx market, the euro-dollar stable. byasuries softer, yields up three. in the face of rising volatility, calls for an equity rebound. >> we have enough for short-term relief. >> we're looking for a cyclical bounce back. >> i would be looking to get long equities. >>