tv Whatd You Miss Bloomberg November 17, 2015 4:00pm-5:01pm EST
joe: and i am joe weisenthal. [bell rings] u.s. stocks struggling to rebound. joe: "bloomberg west -- miss?t'd you and is there a new goldilocks scenario, and what would make it just right for the fed to raise rates? and the future of the chinese consumer. we have got the charts you cannot miss. but we begin, of course, with the markets. we start the day on a bit of a good sell because we had the big rally yesterday, did go up by a tense of 1% for the s&p 500, and walmart had a and her day. at one point, it had its against
advances since 2008, but even after the rally, if you look at the chart, it is only back to the $60 level, which is where it fell after the guidance. joe: and there is a good earnings report with home depot, and it looks like we're getting a big followthrough from yesterday, but in the end, it turned into kind of a nothing. alix: and there is a function theed the port function on terminal, and walmart contributed about 2% to the whichreturn of the spy, basically tracks the s&p, and it did have a very big contribution to the overall stock market. what i thought was really interesting, guys, if you take a look at the intraday of the s&p, when stocks started to lose their steam, it was around 1:15ish, and there was the big soccer match that was canceled, and of few minutes later, we got notice that a british airways
passenger try to get into the cockpit, but then she wanted to get out the exit door, and that was in 15 to 20 minutes, so that exacerbates things. joe: yes. alix: and then there is hope. come inside my terminal for a deep dive. when you look at this steep decline that opec has seen just in 2015, and now, we are right around harish trendlines. it is almost the worst for opec since 2008. -- we are right around harish -- bearish trend lines.
this says to me demand, and that is a question mark. joe: and his oil keeps looking this ugly. alix: and this is just one aspect of it. joe: i want to look at this new and see howon, nt, often it is being used in a story, a way to gauge how buzzworthy it is, and i was looking at the word "i virgins," because everyone -- looking at because "divergence," everyone was talking about it, and it was not the movie. it is almost up at its highest levels of the year, a little higher. it might go to parity, but it has been surging as it means that divergence must happen. it is really taking hold, and it is with the strength and weakness of the euro, what is in
people's minds. scarlet: treasury volatility caught my eyes. with consensus on a december rate increase growing, we are returned to the treasury market. this is kind of like the fix -- vix. points, the68 basis lowest level this year, but what is interesting is if you actually show what is going on today, that is where it gets interest ring. you have a big move in today's straight, even though treasuries were relatively mixed and did not do a whole lot in terms of the actual theme, center is about a 66% chance of a rate in october.m 32% joe: yes, and people think there might be more coming. and you can see more on twitter. from goldman sachs
joins us right now. thank you for joining us, so sees the s&p 500 slipping by year-end and pretty much a flat market 2016, so in other words, no end to the whole market insight? -- in sight? abby: one of the things to keep in mind is we see no recession for the foreseeable future, so for those investors who believe up ap/e ratio's can move little bit, or there can be, to use your work, divergence within the market, in which the leadership stocks continue to do ,ell, it is entirely possible although in a gradual sort of way. alix: what we have seen is that they have put so much money into it was pointed out
that investors would prefer to use that money for capex now. do you see that trend playing out now? by: our work is showing the exact same thing. recovering from the crisis, and when the economy was week, many investors referred share repurchases and dividend increases, which we look at as a tax it vantage, but clearly many investors are looking to see what else can be done with the cash. decade or so, the amount of money, cash, that has gone into growth related investment has gone down by about 10 percentage points relative to the overall balance sheet. now that capacity utilization rates are moving higher in many different industries, now is the time to see whether that money apex, and things like c
additionally, we have been watching the amount of money going into r&d, and it is a mixed picture. those who believe they have got good growth prospects has been putting the money into r&d, and we would hope it would brought it out over the next year or so. talk aboutlike to monetary policy and fiscal policy, because ben bernanke has said that should not be the only game in town. we are starting to see that change because federal, state, and local governments are starting to spend more. that would generally lived gdp next year. what sectors start to -- stand to benefit the most? that is a wonderful point that you have made. we have gone through four years or the actual fiscal impulse has been negative in the united is the austere budgets at the state, local, and federal levels have held back economic activity, and what we
have to understand is that afflicts the entire economy. example, an, for reduction in employment at the government level, and while we terms of good gains in private sector employment, there are many communities around the united states where government employee to -- employees, be they teachers, firefighters, or other people who provide public service, have been losing their jobs, so when we start to see first a neutral and then hopefully some positive impulse here, that is good news overall. now, i know that it is very popular to say industry a and industry b will benefit, but the whole economy benefits when, in fact, government spending stocks declining and we start to see some gains. what do you see is the biggest risk to the market or the economy going into 2016? i think the biggest risk
would fall into the category of lack of cooperation. let me tell you what i have in mind. over the last few days, there is the discussion about the need of international cooperation in the aftermath of the isis terrorist attacks, not just in paris but a rich, the downing of the jetliner over egypt, and so on, and so we think that we understand how important it is that we as an international community will operate, but there are two other areas other than defense where this is critical. one has to do with climate. we have this very important climate summit coming up in paris in just a few weeks, and this is critical as an international issue in which nations, developed nations, and emerging nations really need to get their act together with regard to what we are going to do with regard to energy efficiency, greenhouse gas emissions, and so on, and then
the other area which i think will be essential in 2016 has to do with international cooperation. a very validmade point, and that is one reason that interest rates have stayed so low for so long in the united states is that we have had this fiscal austerity. it has been the fed as the only stimulative game in town, and we can broaden that out to recognize that the united dates has been about the only simulated game in town, as well, -- that the united states have been about the only simulated game in town, and we have to other nations have to do what they need to do to stimulate their own economy. joseph cohen from goldman sachs, thank you. scarlet: what you cannot miss, next. ♪
alix: i am alix steel. "what'd you miss?" let's go right to mark crumpton. mark: carrying out new strikes on islamic state targets in have 36nd france will fighter jets in the region, capable of carrying out air strikes on islamic state target. the charles de gaulle aircraft carrier departs on thursday. for one of the suicide attackers who targeted the french national stadium in harris last week, and they are also asking for information of
anyone who recognizes him. french and belgium authorities have issued an arrest work for another person who was among the attackers, abdeslam salah. and twin bomb threats have forced the cancellation of a soccer match and concert in germany, and german chancellor angela merkel and other officials were scheduled to attend that match between germany and the netherlands, but the stadium was evacuated after what police called concrete information about a bomb threat. a security official is denying reports that explosives were andd outside the stadium, it was also said that a second stadium was evacuated when a bomb threat was received shortly before the start of a concert. house speaker paul ryan is calling for a halt to the flow of syrian refugees coming to the united states.
here is because orion today. speaker ryan: this is a moment where it is better to be safe than sorry, so the responsible thing is to take a pause with a particular aspect of this refugee program in order to verify that terrorists are not trying to infiltrate to the refugee population. : some republicans have had a similar call for the stopping of the syrian refugees, and you can get more on this at the new bloomberg.com. from the bloomberg "first word" desk, i am mark crumpton. back to you. the long dollar trade could be the worst risk for investors, 17% in the last month as the fed inches towards a rate hike, and joining us now is nev il. we have seen this, pretty much into cash.
what kind of risk do you see? risk thathink the key the markets are most worried about is probably the downside risks of china, and you can see that in the commodities space at the moment, and above and beyond that, what we have seen was volatility associated with concerns about the downside. as far as we have seen, that has not yet materialized, but there is a pretty heavy dose of stimulus through the end of the summer months, and one of the things that is starting to worry me and others in the market is that we are not seeing any purchase of that on the chinese economy. we are not seeing any balancing data. we are not seeing signs the stimulus is getting traction in china. there was a survey out today, and one of the things they asked the manager's was about trade, and overwhelmingly, most people seemed to have the
long dollar trade. everyone is taking this idea that the dollar is off to the races, the difference between the fed and the ecb. is this the correct view, or are there some risks to this view that could low up these people think it is so obvious to me long the dollar? well,e: we share it, as and we are going to get the fed raising rates a week or so after is taking it even more negative, and i think when you have got one central bank effectively penalizing people for holding cash, and another increasing or being very modest with their front end, the capital flows that that is going to generate are going to be pretty substantial, and as a consequence, i think at least until we see a genuine turn and economic fundamentals, with the
policy divergence, we should continue to see and upside in the dollar. i think there is a point where we will start to see the dollar's strength effectively if there isf excessive expectation of the fed raising rates. but we are not yet there. scarlet: does not belong dollar affect the other commodities, credit, and rates, or do other fundamentals unique to that asset class come in? : i think it varies. i do think a world in which the fed is raising rates and in which the dollar is responding to that and going up is very similar. me, commodities is one, but obviously, emerging markets. you can say they are already pretty cheaply valued, but in environments where you got the fed raising rates, you have got the dollar strengthening, and
crucially, you're in a period of pretty sluggish growth, particularly when you look at emerging markets, it does not look like the kind of circumstances in which the conditions in the emerging markets are going to be particularly pretty. what is your outlook on the eurozone? we had the inflation number from the u.s., but it looks like more upward pressure, and a similar story out of the eurozone earlier this week. neville: i think in the u.s., there is a genuine risk, and what they are overly worried about, over the last month, they haven't focused purely on the downside risks in china. in previous years, we have been worried about inflation taking off in the u.s., wages, and maybe this is the point at which inflation does start to pick up. in the labor this market now to warned concerns
about that. on europe, i am less worried about inflation picking up. in the eurozone, it is largely down to the fall we had in the euro over the past euro so, the other side of the dollar trade, which has driven up the prices of imports, not really being driven by domestic elementals, which i think is still consistent with soft inflation and certainly consistent with the ecb into doing to keep their foot in the door and stimulating the euro. all right, we have got more from neville hill after that, but we just got this crossing the terminal. this back inklings of on november 9, but now, this offer has been normal. canadian pacific did not disclose the exact terms, but it did say it offered a sizable premium in cash and stock to a railroad company. whilek southern jumping,
u.s. slack and other slack, particularly when you look at working. what do you think accounts for this, and you you think the market perhaps needs to move forward with expectations of when they are going to move forward in the u.k.? neville: we have been focused on the unemployment rate, which has done much of the some -- same thing in the u.s. and u.k. in the last 12 months, you see the slack that the u.k. has a much, much tighter labor market, and what is interesting for the u.s. as well is that whereas we are still waiting for wages to pick up and to some extent respond to diminishing slack in the u.s. labor market, we really were looking for signs of that in the u.k., and wage growth was very ago, and itw years has picked up but is by no means strong. thinking which central bank would prefer to raise, be in
place to raise rates the soonest, you can make the case that the bank of england should be in the forefront. i think where there is an important and crucial difference is whereas the u.k. is much, than the sensitive u.s., and the bank of england, they are much more concerned about sterling appreciation that the fed are about the dollar. the fed is completely unconcerned about that. let's talk about the eurozone, looking at the slack. the eurozone is in different territory. how carefully is mario draghi watching that, particularly heading into the december meeting? is more thanink it people give him credit for. if you look at indicators for the euro area, things like the pmi and the gdp numbers, they
are not doing badly or certainly enough to worry people that the eurozone is sliding back into recession, as it could have perhaps been a year ago as they were preparing for qe, but the very high level of unemployment in the euro area is absolutely key for mario draghi, because if you think of what the ecb has done over the last years, they have moved a whole chunk. two or three years ago, we were talking about the italian public finances, and now italy is borrowing at a negative interest rate, and it is pretty sustainable on that basis, and one thing that has put the existence of the euro at risk is a very high levels of unemployment, the very high levels of youth unemployment, continuing to generate support for the non-string financial parties coming to power in greece, and as we saw in greece in the first half of the year, once you have got sort of politics like that in the euro area, you do run the risk of
accidents, as we can close to over the summer with greece, so i think for the ecb, it is a really strong case for keeping the foot to the floor and keeping stimulus going in order to help that rate and to remove some of that risk. is this where we wind up seeing the qe effect? that was surprising to me. eville: yes, the game that mario draghi has played from getting the euro down from 140 to below 110 where we are now has really, really worked in terms of sustaining european export share and growth. when you think a couple of years ago, the euro area was , andtively just exporting it deftly has helped sustain it. scarlet: thank you, neville
♪ scarlet: i am scarlet fu. "what'd you miss?" let's go to mark crumpton. mark? mark: new airstrikes being carried out in syria, and france says they will have 36 fighter jet in the region, ready to launch more attacks once the charles de gaulle aircraft itrier reaches the area, and do barks on thursday. in paris, u.s. secretary of state john kerry and french president françois hollande
discuss taking significant steps together against islamic state. this was a day after the french a global called for effort to defeat isis following friday's violence, and in an effort to put together a coalition, the french president and travel to washington moscow for talks with president obama and vladimir putin. it was said that washington and russia need to put aside their policy differences over syria and put together a union of all that can fight them in a serious coalition. he would not ban syrian refugees from entering the united states. speaking with john halperin -- mark halperin and john heilemann, he talked about the presidential field on the issue. bush: we have systems in place. if there is any kind of concern, we should not allow people in,
but i do not think we should eliminate our support for refugees. it has been a tradition. john: including the syrian refugees? you do not want to ban them from coming in? mr. bush: the answer is not to ban people from coming. the answer is in syria. that is my focus. mark: and you can see him on "with all due respect" coming up in about 30 minutes at 5:00 p.m. eastern time here on bloomberg television. you can get more on these and other breaking stories 24 hours a day at the new bloomberg.com, and from the bloomberg "first word" desk, i am mark crumpton. scarlet: let's get a recap on how stocks closed. we have a failure to follow through on yesterday's rally, the dollar holding against the the, but the big story of
day really was walmart, because it had its biggest advance since 2008 after corley earnings beat estimates. and it was said they added that is to the spy, and how important walmart was to the market today. joe: i went to dive into my terminal and talk about a precious little, and it is not gold. this is silver. six-month chart of the silver. i want to look at the last few days. silver is on a 13-day winning streak. bars is af these red day silver was down, down 13 days in a ropey at that is the worst streak in like 65 years, and gold -- it is so ugly. people were so into it. it is very sad. and 60% of silver has an
industrial function, unlike gold. joe: the whole sphere of the metal trade is dying, and the industrial economy is also slowing, so it is just really sad. and was the socgen report. they have a model where they'd rate down the straight as well as macro risks, and actually, the macro risks are becoming much more important for silver. joe: there you go. scarlet: and we know that wti is at the lowest since late august, and that means investors are turning more pessimistic on oil. this is the short bet against oil, according to the latest data from the cftc, edit it went up 21% there in the last week comes towhen it fundamentals, the story has not changed at all, which is excess apply and somewhat weak demand. put: there was a position
out on this that you can get a snap back in demand, and it will be off to the races. it may not be long-lived. joe: one day. people are still buying it? a huge rally. issues in the commodities route is national gas, prices down 45% this year with oversupply, high inventories, warm weather all taking their toll, and the other big factor is investor positioning. bearsecord high as the dragged on the price, and david crane is joining us, the ceo of a utility company which also prices highergas to be a happy man. david, what do you think? david: i think given the supply situation and the outlook for the veryer in short-term, we cannot really argue with it, but as the
largest consumer of natural gas in the united states, the electric sector, we see a basis for a big spike in demand, so i think it should be a v-shaped recovery. some others may disagree. pickens was out early today, and this is what he had to say about natural gas. mr. pickens: i do not care if gas ever bounces back. so much natural gas, it is just a killer, a killer. that hurts. gas is dead money. you're never going to get your money back. what would you say? david: we have seen some switching from coal to gas, but what we see now is that people to gastching coal plants
plants, and on p days, we uld be using a two incremental on starting tople are retire nuclear plants because of the lower price of natural gas, so you have the power sector in the united states that is moving system, and ife you replace all of the coal and all of the new creon -- all of the nuclear, that is demand, so i think it does bounce, but it is just a question of when. joe: you have a home solar unit that you're trying to sell, but anything like that is ugly, solar city near multi-year lows. are there buyers interested in that? david: what i would tell you is i cannot find a subsector of the energy space, and there is just no bid offer out there, in terms of everything driven down. i mean, the home solar business is just in its second or third
year as a real publicly traded it is an industry with teething pains, and while i do not want to mention any some are being dragged down more. when talking about solar, you're talking about an industry where there probably should be 30 million to 50 million american homes that have solar on the roof, and right now, the biggest player is doing about $200,000 -- 200,000 a year, and they are getting caught in the downdraft and a couple of week names, as well. david, in recent years, this has been driven by acquisitions, and we noticed you made to go your purchases, and a 2015 six purchases. what is the scope of the appetite as you simplify your structure? think right now, the key is simplification. our company is very
substantially hedged. we have a enormous cash flow generation, and right now with on risk off, a big focus people getting their debt down to lower levels, we have talked to the market in terms of capital allocation about reducing debt as our first priority, so you never want to rule out acquisitions, but right now, that is not the main focus of what we are up to. alix: david, you were talking about your debt load, and there are a couple of things about your stock. once, it is the worst performing in the s&p in that sector, and two, your credit default swaps have really blown out just in the past few weeks. what is the market telling you about their confidence in your strategy? david: well, one thing i would notis the market is differentiating between recourse and nonrecourse, because we do
carry a lot of debt, but a lot of it is self amateur rising wouldand another thing i tell you is that the market is being driven down by this focus on commodity prices, and right now, it is craving symbol of, and energy is not a simple story, and that is because we diversified away from commodity risk. risk,e hedged away monti so the cash flow position of the company this year and next year is extremely strong. alix: thank you, david crane, ceo. scarlet: and attempting to quantify demand. ♪
♪ coming up on bloomberg television, and interview with jeff bush, the republican presidential candidate, and that is coming up on "with all due at 5:00 p.m. eastern time. do not miss it. i am scarlet fu. some of the big stories in the news right now. the ftc is suing sunrise nutraceuticals over claims against how people with withdrawals, including from heroin, and there were marketers they accuse of making unsupported claims, and fraud charges were announced against two other companies today. alix: and spinning off a go to business, a software company doing a completion of a deal next year for citrix, and it could have a value of $4 billion. scarlet: and this just in in the
past 30 minutes, canadian pacific says it has offered a sizable premium in cash and stock, but no specific amount was disclosed, and the merger would create a transcontinental railroad spanning north america. and that is your bloomberg business flash, and let's turn now to china, where demand, of course, is a major engine of the global economy, and today, we are quantifying it. the demand institute has crunched the numbers in a new report, and one of the authors joins us now. you started the research about one and a half years ago and have drawn on decades of numbers. what is the most surprising finding? louise: we predict 56 trillion dollars in consumer spending over the next decade. alix: $56 trillion?
uise: by 2025, we project consumer spending will be about $6.5 trillion in china. the second-largest consumer economy today and will be a decade from now. how did you do this? 1.3 billion people. how did you walk that out to 2025? louise: there are models, and you look at demographics and consumer behavior. you look at what china and other economies have done as they developed, and you build models to project how consumer spending is going to go as its economy develops and its consumer behavior changes. long ago, not consumers, but there were a lot of models about chinese growth, and china was going to be the biggest economy in the world, and then the slowdown we have
seen in the last few years has sort of changed the trajectory of that upward line. how has the recent slowdown changed sort of your forecast and your model? louise: well, china will be the biggest economy in the world, if it is not already, depending on how you measure it, and the slowdown is what we would expect in the course of development as china transforms from an export-led economy to one that is more service lead and more consumer led, so what we are seeing is a period of transition, and what we are expecting is that consumers will play a bigger role going forward. meatet: let's get to the of your report. non-chineseere is a bread, and they are looking to establish a presence there, but beijing and shanghai are obviously out of the stratosphere for them, they cannot afford to do that. or they go into a third tier fourth tier city and move the deal?
louise: most people look at the fact that china is not a country. it is a continent. we have grouped them into 11 different groups and prioritized them where they stand relative to consumption growth and consumption opportunity, and we think for companies entering china or with a presence in china, yes, you are probably beijing start out in and shanghai. there is a lot of opportunity, including tier three and tear for cities, but you have to be very careful, and the study provides recommendations. it was not just the wealthy or the lower income. can you talk about that spending segment? louise: one of the things that china, people talk about the middle class, but it is not a middle-class life in the u.s. we are talking about people who have some discretionary spending power, but it is not the way we
ink about it in the u.s. however, there are a group of people we call connected spenders who are really engage consumers and really are going to drive the vast majority of growth, and some of them are higher income, but some of them are lower income. be theo are going to winners? i know for a long time, people talked about the european brand as having done particularly well in china. are they going to continue? you expect too thrive? louise: chinese consumers have enjoyed for an brands and have been in favor of them, and we expect that to continue. we do expect that over time as local brands continue to improve with the quality and their engagement with consumers that chinese consumers will look more towards local brands, but in general, chinese consumers love to try new products, new services, new brands, and there is opportunity for global companies from all regions.
scarlet: it does not seem that they prize some items in the way american consumers do. louise: chinese consumers are excited to try new things. about income and household savings rate going down, the idea that they will be saving less and spending more. at what point does that word you that they are not saving enough in our spending too much? louise: oh, if you look at china, it has a long way to go before it is unhealthy. compared to other markets, the household savings rates are a savings rate is well above the global average, and these changes are going to happen gradually over decades, and it is all part of a healthy transition towards a consumer led economy.
over 1.9% year on year, and we will now did you are into that data and discuss what you might have missed, starting with health care, a big driver of core inflation. this is interesting. it was up year on year, but you have medical all 3% year on year, hospital costs up 5% year on year, and we talked about this a few weeks ago, have goldman sachs mentioned they are doing a lot of regulatory and policy issues that are holding down wage and inflation. joe: this ongoing decline has been one of the biggest things holding down for inflation, and like 10 days ago, goldman said it was about to pick up, and one of the charts that they had showed that hospital wages had really been accelerating, and they saw that as a reason that health-care inflation is about to pick up. rightn see that charge there. that is one indicator. know it madeid not up so much, so it is really
important that this measure actually picks up. >> another important thing in this report in terms of the core, these services ex energy. services are the vast proportion, and this hit its highest level since the crisis. i think this is one of the peers wait to see what is going on with inflation, service data. it is not exposed to global slowdown or commodities. and another pointed out there is pricing power in the moving and the freight services business. if you look at that alone, prices are up 6.4% year on year. that is the biggest pace since 2005, and that is a sign that people are moving around the country more. joe: a really good sign for the economy. surprisingis really to me, actually, because we keep hearing about freight, and it seems good, goods being
transported all over the world, what the demand is, and this is a really striking indication that we are really buying stuff, like maybe the economy is not that bad of a thing and that we are moving stuff. and if you look at the ticker, the company that owns u-haul, that stock as in on a tear so far this year. joe: and i wanted to point out it is not just this. aboute everyone talking deflation. the core numbers everywhere are slowly building up. the inflation story is sort of overblown. coming up,stuff, and what you need to know to gear up for tomorrow's trading. we will let you know. ♪
scarlet: i am scaet fu. "what'd you miss?" despite -- department stores showed some weakness, but home depot not. people are buying things for their house, and they play into it. inx: and the fed minutes ago to come out at 2:00 p.m. eastern, documenting a meeting, but this does not include the november jobs report or any kind of issues we might see around the paris attacks. joe: and also in terms of economic data, don't miss housing starts tomorrow morning at eight: 30 a.m., and they are looking for a pullback, down 3.8%, but housing starts are see not just a bright spot but a potential tailwind for a long time since they have been so depressed, so people want to see that the general trend going up is still in tact and important
john: i'm john heilemann. mark: and i'm mark halperin. and "with all due respect", to jeb bush we're going to break so much news tonight, not even you can fix it. ♪ john: on the show tonight, the former interview with the former florida governor later in the show. but first, the over governor and a lot more. a majority saying no to syrian refugees. a bill is coming that would "pause the flow of refugees" coming into the u.s.. and the heat from the president'