tv Whatd You Miss Bloomberg October 15, 2015 4:00pm-5:01pm EDT
[closing bell ringing] u.s. stocks resuming the october rally, rising to a seven-week high. joe: but the question is "what'd you miss?" scarlet: stocks favorite eminent rate increase. we talk about what's at stake. joe: and life without low interest rates. are they encouraging people to save and not spend? alix: another downgrade for brazil. what this means for the rest of the brick nations. scarlet: we begin with the markets. their first post back-to-back decline, we post a risk rally. you and i are trying to figure out what the catalysts are. bid -- ill deadly did talk but
he did not make any comments that would drive all-time. joe: i could not find anything that was articulate driving stocks, but everywhere you look, there's a rally. goldman sachs, people thought they missed earnings, but they rallied. and it comes on a day when you have netflix down, which has been a driver of the market. and talking about rally, gold is back. it has a it losses for all of 2015 and went above it 200 day moving average yesterday. this all paints the picture of that gold does not think the fed will raise rates this year. everyone else thinks the fed won't raise rates. i want to take a deep dive into my bloomberg terminal and look at the dollar index. something is interesting -- this
is called the death cross. it's when the 50 day moving average moves below the 200 day moving average. it happened just a few days ago and the dollar has been moving lower since then. i looked at the other two times where that has happened and yes, you have the dollar index moving lower. interesting dynamics happening there. i want to dive into my terminal and look at inflation data. the headline was very weak. itsfed is missing on target, but other ways of looking at inflation are not as bad. in fact, they seem to show some firming. here is theline
services inflation excluding energy. very important slice, one of the highest levels in a long time, clearly on a firming trend. fed -- the cleveland clearly in and up trend. becauseto be careful the deflation fx from oil will fade and may be core rate of inflation is not so bad as everyone thought. scarlet: that is something that should be on the dashboard of janet yellen and fed officials. alix: i want to point out how government bond developing developed this is the sovereign bond index and you are looking at the price shoot up. sawsiting the levels we after china's currency devaluation. i want to show you the yield as
well and we are basically revisiting the lowest here. that atds are now low 96 basis points. some measures indicated that up to. riot.he markets don't any measure of inflation or expected inflation were higher rates, there's no sense that the market believes this. with us for a full half , chief bankim chadha investment strategist from deutsche bank. scares can theny bull market in door? we have endured a large number in this cycle. it has been an unusual cycle
from that point of view. at the end of the day, it depends on how long the cycle lasts. joe: we have had data in the recent days and it has been hard to parse. retail sales came out yesterday and once again, it seemed week. as it wasn't actually as bad a fake. how do you see the data flow? guest: i work in the financial markets and you don't tend to look at straight lines. you look at them in their trend channel because there is always noise to the data. sales have been going at 4.8% is the bottom. oilad a big decline in prices, so i strip out gas to get an idea of what the underlying trend is.
yesterday's data was a snore. we are toward the upper end of the channel and are going to very steadily -- i don't get too much information out of it. when you look at retail sales versus what we hear from companies, it feels like we have a profit recession without an economic recession. how does that make sense? binky: i would say there is no profit recession. flat the last three quarters. and will be down 5% or 6% clearly we had two very large shocks over the last year. we have had a 50 plus percent decline in oil prices and at 80% to 20% rise in the u.s. dollar.
in terms of thinking about what's happening with earnings, you need to take these things out. i am not arguing that they didn't happen, but is -- it is important to keep in mind that for reasons of seasonality, we look at year-to-year earnings growth rates. from what i call the dollar , ise from mid-april to today would say the dollar against major currencies has a sickly been flat. what's going to happen by q1 is the dollar's rise and the impact -- you are basically going to get a big pop in earnings because underlying earnings in 10% or. basically ran at 10.5%. when you adjust for oil
prices, what are you measuring question mark how many companies are not affected by the stronger dollar? binky: the way that we do it is if you think about the s&p 500, i would say energy and materials are dependent on oil prices and commodity prices. those are driven by the u.s. dollar. then there are financials. financials in this cycle are a whole different that of issues. what we always do in the first at financials and materials. that's the earnings i'm basically talking about. the overall s&p 500 -- i would say oil price decline taking off about six percentage points. 5% orllar is taking off
6%, maybe as much as 8% or 10%. to minus five and you are talking about 70% earnings growth. when you get a company whose earnings -- the number is extremely important, but what's also important is what is it telling me about the forward trajectory of earnings? if the dollar keeps rising and that is goinging, to come out of the forward trajectory, and that is why it is important to look at what is underlying earnings. something we are seeing in the u.s. and around the world is that service sector is measured by the pmi is outperforming manufacturing in every single reason -- every single region. is this a trend away from manufacturing? the secular trend
longer-term is indisputable, but in terms of the data we are talking about, it does not have much to do with that secular trend. do with the fact that the dollar rose and oil and commodity prices fell. so you are going to see a big impact on manufacturing with competitive issues in the u.s.. and then there is oil prices and energy. lots more to talk about, in the meantime, schlumberger earnings are coming out. i love this company. we need to get first read on what is going on in the oil community. $8.74 billion.e the estimate was for 8.50 5 billion, so that would be a mess. $.78 for continuing operations and that is a heat compared to the consensus.
in terms of comments, the companies is the recovery appears to be delayed and sees conservative customer budgets next year, so not exactly bullish comments. it seems to mesh with the fact that we will see a lower for longer price environment, specifically for the oil prices. what more coming up -- does the data say about the global economic slowdown? we will get deeper into detail. the answer may surprise you.
let's get to mark crumpton. obama says the united states will keep more troops in afghanistan than previously planned. 5500 americans will remain in the country. they will be involved with her terrorism operations and training afghan forces. the senate armed services committee chairman, john mccain, says he's concerned troop levels won't be enough. gains in coverages from health care exchanges set up under the affordable care law may be leveling off. the white house estimates only a slight increase in enrollment for 2016. fewer than a million people. it is burwell says getting harder to sign up the remaining uninsured because they tend to be young and managing tight household budgets. ukraine has a new global platform for taking on russia. it's one of five nations elected to the united nations security council. the others, egypt, japan,
senegal and uruguay were unopposed in their bids for nonpermanent seats on the council. oscar pistorius will be released from a south african prison next week. he will serve the remaining of -- the remainder of his sentence under house arrest. he was sentenced to five years for the 2013 shooting death of his girlfriend. the double-amputee known as the blade runner claimed he thought she was an intruder. that is your first word news. back to you. alix: we are back with binky deutsche bank. you say there's a disconnect between hard data and investor sentiment. when going back to manufacturing versus services, what's going to be the catalyst to make the manufacturing data move up to services where you have the data and sentiment combined? binky: what has happened in many
of the growth scare's we have had in this cycle is we have seen this sentiment indicators react. i would say this is a feature of all data where you are asking people what you think is going on and how you perceive things are. we have argued it looks like a typical episode and at the end thate day, what has turned around and the catalyst to get that up is if the hard data hangs in there and sentiment gradually improves. each of the episodes have different catalyst, so the is great onelf uncertainty.
then the macro data gradually got better because the hard eta hung in there. data drives sentiment, but to what extent does sentiment drive data, especially in services driven economies? binky: the imperial -- the empirical evidence is very little. causality goes from one to the other and that's probably a good thing. question whene the equity market sells off in a do way, what kind of decline you need for consumers to start pulling back? it's a function of magnitude and duration. basically anything short of 50%
is not going to do that. joe: what do you think about the uncertainty coming from the that? at least in the public's mind about what the fed is going to .o next binky: it has a big impact in the rates market but i would argue it's not doing too much to equities. the uncertainty did not go down down lastt did not go week. equity markets have done just fine. are looking at the data and manufacturing catching up with services, does that mean we have seen peak dollar? binky: i would make two points on the dollar. it would have a much longer
framework whereas if you think about the dollar against the major currencies, it's a long six or seven year cycle. instarted at the bottom september of 2011 and rising about 5% a year. if you look at that nine month increase in the u.s. dollar, that's the fastest rise in the u.s. dollar in trade related terms ever. that, it'sve done more than likely you will get a pause. we have two circuit breakers that have evolved. number one is that. the extent to the market
reaction and rate hikes getting pushed out because the dollar is rising and you have a circuit breaker. and we were talking about earnings. the dollar and what it has done to earnings. 6.5%.end is about you are at zero and the market would look through it. we start getting minus five and -10. the market is not likely to give you a pass. we basically argued since march, so maybe a few weeks early we would have an extended pause in the currencies. term, them and long dollar up cycle, i think we are about three quarters of the way through.
we still have another 10% to go, but it's not right around the corner. doesn't happen until everyone buys into the growth story, so there's very little risk of that. scarlet: when you look at state and local government spending, $439ve posted a $439 -- billion deficit. does that signal relate in the economic cycle? binky: state and local government spending tens to be balanced budget, so it tends to be pro cyclical. that is a procyclical kick for the economy. it has a lot to do with property tax revenues that have in the late.
people or encourage people to spend more i would argue is based on looking at one side of the household balance sheet. if you look at the household balance sheet, it sounds like a lot of money. but in most corporate and other entities, we look at both sides of the balance sheet. bigger, onetimes hundred trillion dollars. it's normal to keep some balance inof the cash. if you think about the interest and the income, that's about $400 billion. most people say if you have $100 trillion, people did it for a reason. the rate of interest on that wealth is going to matter.
people have a target level of wealth they want to get to and if they are not earning as much, they have to save more, but do people have that or is it just in the world of economists? binky: on the contrary, this is not a theory, it's an empirical regularity. low, it'st rates are about discount rates over time. when we were looking at the inverted 10 year yield, that is the -- binky: exactly. it runs contrary to the most popular theories. financialefore the crisis, did this hold up? binky: it holds up from since the data exists in 1950. economicuestion of
debate and theory. traditional wisdom is focusing on one element of things. if low rates encourage more saving and we can't hit inflation targets around the world, do central banks have to rip up everything they know and admit they don't know what they are doing? binky: i would argue the peace that you are referring to is arguing that one -- that spending and inflation might be low because we have kept interest rate low. people would save a little less and have a lot more income. one thing we do know about u.s. households as they tend to spend 90% of their income. scarlet: basically raised rates and we will buy stuff. thank you so much for joining us today. binky: thank you for having me. scarlet: we will be right back. ♪
scarlet: i'm scarlet fu. "what'd you miss?" fors get to mark crumpton first word news. mark: dennis hastert will enter plea later this month as part of a deal with prosecutors to resolve charges for allegedly money payments. the deal keeps potentially embarrassing details from coming to light during trial. prosecutors say he lied to federal agents and intended to conceal alleged sexual misconduct while hastert was a high school teacher and wrestling coach. prosecutors in scotland say they
have identified two libyans as suspects in 1980 bomber of a -- bombing of a passenger jet. scotland and the united states are asking libyan authorities to allow scottish detectives and fbi agents to interview the suspects in tripoli. the bombing of pan am flight 103 killed 270 people, including 11 on the ground. forecasters say much of the united -- much of the united eights has a what hunter ahead, but not necessarily a snowy one. the forecast is due to one of the strongest el niño's on record. expects a cool and wet winter for the south and even drought ravaged california may get some relief. 70 news for more than million americans who rely on social security checks -- they won't be getting a cost-of-living increase next year. the reason? low inflation. recipients of disability or federal retiree benefits also will not be seeing increases.
it is the third time that has happened since 2010. that is your first word news. back to you. let's get a quick -- scarlet: let's get a quick recap on how stocks closed. we saw the dow closing at a two month high. the risk rally has resumed and commodities increased. treasuries fell and yield rose. we are trying to figure out what the category is. joe: nobody i talked to warsaw had any clear idea. what's interesting is oil prices were much lower when they were coming out at 11:00. that leaves me to my deep dive, which points out the nuts and bolts of the energy report. and is refinery utilization
it's at about 96%, the lowest since january. so refiners are working less and using less crude, so you see these huge stockpiles happen. so it is maintenance season and they are moving in to do something else for the winter. the other part is margins are coming in. you told me a few months ago about refineries overcapacity and people were worried about that. alix: they were working so hard and a margins were so great and seeing a product old across the oil world, especially in just a let's -- in distillates. my: i want to dive into terminal to talk about the jobless claims number and put it into perspective. it's one of the lowest in decades. it's an incredible number. it is a five-year chart of adjusted links. you get these jumps in holiday
hiring, but i want to pay attention to this pink line, which is the 52 week moving average of jobless claims. it's extra gary how it is a straight line down with almost no brakes at all. the relentless pace of improvement in fewer filing for claims. it's extra gary how low it is going and how steady it as been. itrlet: the caveat is that has slowed down even as jobless claims continue to climb. betting in that will have to cut dividends. this is down about 20% since september when nsa be miller said it was open to a potential offer. they are pricing in a 33 cut to the dividend payout. it has a yield of about 3%, which is better than the average
2.5%. alix: it is basically the futures curve for dividend payouts? good stuff. now we want to turn to quantitative tightening. various factors caused global central banks to draw down on foreign exchange reserves and the moves have led to less money flowing into the system. joins usooney vera now. when you look at that chart and reserves being pulled down, what's the ripple effect for the global economy? mobile equitynk is going to remain at high levels. i'm actually expecting the fed, once they do surtout hike rates, trillion that 4.5 balance sheet and never go back to precrisis levels. the market says the
fed is going to hike later, shallower and with the rate far lower than the plot says it will land that. i think it does factor in, but moving to emerging markets, the real investor, the real money accounts are going to have to search for yields. japan, thek of european central bank and the fed on hold, i think earliest, march means developed markets will stay at low rates for a long time and the u.s. dollar will remain a zero yielding asset for a long time. that should give a bit to a bombed out sector which has been an emerging space. want to go back to what you are saying about the bank of japan. the government says the that it is different than previous deflationary times. is he wrong? kathryn: i think japan is on the
edge of a pernicious cycle. it's a technical recession and industrial production came out very poorly. at zero turning negative, so the bank of japan wants to avoid that situation. i think it's more likely than not they make every effort to battle another round. i think they are going to increase purchases of reads and etf's in this next meeting. the rotterwe look at landscape, no worries because all the qe in the world is going to offset that. what about effective prices. as much as $2.3 trillion globally, which is in essence qe and another drying it down because they don't have revenue from oil. oil stabilization is
critical to the market rebound being sustainable. we cannot see and other leg down. that's going to be critical to market confidence. barrelil rising to $65 a based on lower production out of the united states and will be attached to a stabilization of china. chinaternalization that is not going to be a systemic threat to global growth. the meantime, you are looking at these countries that don't have the cash to reinvest and other assets. that is money we are not getting back. true, but if we are talking about market sentiment, to look atat i like from my institutional clients come in at top of lee what is going to turn the market around.
spending and 200,000 jobs pace with tumbling crude prices. isx: anheuser-busch inbev planning a record bond sale. bloomberg news says the maker of budweiser plans to sell up to 55 alien in bonds. it's the biggest consumer deal ever. scarlet: lloyd blankfein is telling goldman sachs employees that he won't be sidelined by cancer. he spoke on a conference call today and told goldman's managing directors at he will keep working and bothering them as he undergoes chemotherapy. he announced last month that he has lymphoma. and we have some breaking news it'sm brands reporting cutting its for your outlook and making a new management a pointy -- management a pointy. alix: keith meister will be joining the board. core backs owns about 5% of the stock. vex owns about 5% of the
stock. rings are looking ugly. pizza hut -- we only think kfc is where they feel the most pain, but they see positive, there. they are blaming the fx translation there. they have seen and earnings growth of at least 10%, but that's no longer the case. scarlet: yum brands it really missed the boat entirely. they are getting a little more visibility into how things look in the following year, indicating there's no turnaround anytime soon. higherands are trading in after-hours trading, up by 2.5%, oddly enough. brazil'sch lowered that rating to the cusp of junk status.
fitch said it could cut the great again as government finances worsen. alix: the rating downgrade reflects brazil's rising government debt and increased challenges to fiscal consolidation worsening economic growth backdrop. the difficult political environment is hampering progress on the government's --islative agenda, created a creating a negative feedback loop for the broader economy. what took it so long? everyone else had already cut it to junk. scarlet: joining us to discuss result is kathryn rooney vera. you talk about the pinnacle turmoil and the possibility of impeachment for the president, but that risk is good for assets. impeachment would be a tremendous market positive with assets rallying across the board if that were to come to pass, which increasingly seems to be the case. i would put the probability at higher than 50%. it's seen as a you much a given. it's important to see a change
of power at the top because of what you mentioned. getyone is expecting to brazil across from investment greater junk ratings because of the problem -- because of the policies the president has implemented. faced a collapse in credible to the monetary front, the fiscal front and the monetary fund -- monetary front which is exacerbated by this scandal and is showing its tentacles throughout the economy. scarlet: so they have the opportunity to wipe the slate clean? alix: is new management going to be any at her? isn't everyone as corrupt as everyone else? kathryn: she has popularity ratings lower than the inflation rate in the country. her party has really collapsed in the polls, so i would say anybody would be perceived as better as she. and there'sleaves
an opportunity to do reforms, what specifically do they need to do to win back the credibility of investors? kathryn: what they need to do, they are not going to do. they need to do it meant structural reforms and there's no political will to do that. what investors will take is some improvement on this goal revenue, increased more credible to the fiscal front and not putting on capital controls. scarlet: and all of that is doable? kathryn: the structural reforms are unlikely, which would be in the pension and reduction of the size of government and state development. that is not going to happen. what could happen if we got a change of management would be more consensus building within congress to get to where they need to be. we are talking about a fiscal deficit that's close to 10% of gdp. and aion at 10% of gdp really deteriorating trend
across the board. one area that you do like an emerging market is india. we've seen them try to increase manufacturing in their share of the economy. is india the china of five years ago? kathryn: india is deathly starting from a lower base. if you look at gdp per capita or urbanization ratios, you can see india is where china was even 15 years ago. sndia is the star of the bric and is going to grow. the gdp per capita is so much lower compared to other asian countries. kathryn: even china is three times that of india. they also have a higher compensate -- higher gdp attached to consumption which makes the consumer segment even more interesting. alix: thank you so much.
alix: i'm alix steel. "what'd you miss?" the fed low rates are not benefiting corporations and these two and it's now worth it for companies to refinance. joe: one thing that is awkward about the rising cost of arming is corporations are on a binge right now. they are borrowing at their highest level of all time. check out this chart. they are funding their
acquisitions to keep growth and funding share buybacks. servicing the debt just got a lot harder for the companies in the second order. interest coverage, the amount of times a company could pay off its interest using ibo. fell in the last year. a fell off the last year. , so we are revisiting levels last seen in 2008 or 2009. alix: if you look at what investors want companies to do, those companies that invest a lot in buybacks as well as share repurchases are underperforming the market currently. it not even like investors are digging that use of cash. you i'm looking at is where are seeing the strain in the market. it's getting more expensive tomorrow. if you are refinancing old debt,
point2, you were getting 83 percentage points below the rate where you are refinancing. so you are really getting that in a fit. now it's about .25%. it costs money and it cost time. if the last one was caused by household leverage in using the homes is piggy banks, to what extent is corporate over leveraging going to be the next cause of the next crisis or the next downturn? joe: one of my favorite stories is that there was so much that dell issue and that jamie dimon went to the board and said trust us, we can get the financing for this deal. it speaks to the anxiety about how much debt is being issued at a time when spreads are creeping up.
high debt loads could be a drag on the economy if corporate credit tracking can lead to a recession. low treasury yields have helped high-grade companies borrow. overall, it is a hidden risk percolating in the market. scarlet: to what you said about jamie dimon go into emc, they shared a rapid pace of loan growth in the third quarter and they need a revenue driver. everyone is saying what is your growth story? history has shown it is hard to resist that. ubs has said that borrowing costs will rise in the first quarter even for the top-tier borrowers. will have to consistently start paying up to do that.
scarlet: i'm scarlet fu "what'd you miss?" -- generalgs electric coming out with results ge is famous:30 -- for managing it earnings to within a sent or exactly where analysts expected. this would represent a 31% drop but ge is a smaller company. alix: trying to transition into an oil service company. if youughes rig count -- look inside my terminal, we've seen a huge decline in riggs. it actually probably doesn't matter. citigroup came out with a note that said there are 5000 wells drilled but not completed but we could access 350,000 barrels a day. so does rig count matter? tomorrow the job
jim webb, we are still waiting for your fundraising numbers. were going to give you 10 minutes. -- or are going to give you two minutes -- we are going to give you two minutes. first, the cache with a drawl, the presidential candidates have until the end of the day to show us how much money they have raised in the past three months. ben carson is up there with $20 million in q3.