tv Whatd You Miss Bloomberg December 7, 2015 4:00pm-5:01pm EST
u.s. stocks closing lower today. energy shares sinking the most. >> the question is, "what'd you miss?" scarlet: countdown to the fed. what does it say about the central bank and markets? hides risksy money in the economy. alix: and showdown in france. we discussed the implications for the country and the rest of europe. we begin with the markets, the dow is back in the red for the year. weak oil is really the story. there was no economic daily to
concern the market with so that compounded the effect of energy losses. i was just checking everything cap energy stock, were talking all 40 members. the best performing was valero which is still down. joe: i'm pretty impressed, the overall market did not sell all. you would think on a date before dumping everything in sight, we wouldodities, expect to see a major liquidation, but less than 1% down on the major indices, that is pretty impressive orman. alix: energy shaved about 20% off the index. but whatlot of damage, i thought was fascinating, look at the currency market. the energy spillover was not just in stocks, it was also in other asset classes. the canadian dollar dropping to
the lowest level in 11 years. the colombian peso plunging to a record also. commodity currency is just having a rough time. the norwegian currency fell below parity against the swedish currency for the first time. alix: oil is the story of the day. let's dive into the bloomberg terminal to look at why. versus the oil price over the last figures. something i struggle with, we should not be following this much. there is no trigger. the white line is the nymex short oil contract, right around her record high. look at this gap, that is how .uch oil is falling it's much worse than what we saw back in 2008-2009. i've yet to come up with an
answer why. who wants to sell here? are these producers? you are literally leaving money on the table now, so what is the actual catalyst? i don't know, i'm still working through it. mlp index, high dividend paying oil transport companies getting absolutely clobbered. these are popular among retail investors. the crisis between 2007-2009, the mlp back then fell just under 50%. over 50%,ll is just so it is already worse than it was during the financial crisis. in terms of the oil collapse hurting retail investors, a lot of evil on these for the
dividend. absolutely destroyed in a very short time. kinder morgan coming out potentially to cut their dividend. 10% dividend yield. can they sustain the yield? joe: there's probably some extra bidding up of them. scarlet: i want to put the oil weakness into perspective. month of averaging below $50 a barrel. go back to late july in this chart. belowgust oil averaged $43. september.45 in right now so far this month in december we are looking at $40 a barrel on average. ugly one where we got to as low as $37.50.
so much for that recovery. you can see all these charts and more on twitter. bill joins us now for more on the markets. we are approaching the fence december meeting and the potential first increase in rates in nine years. can the central bank deliver on gradual path of tightening? the forecast is more hawkish than market expectations. the question is, what does the fed need to do to pull off a slow tightening cycle? if anything, they need to lower a quarter point or more. is we arexpecting maybe 1% at the end of next -- about a is a
quarter of the pace of typical recovery. we don't know what is going on in the future we have to be careful. scarlet: don't they undermine their own it credibility? >> we're going to proceed as we did before. they have been promising gradually, it's been a long time since they said we would be doing business as usual. larry summers had a new piece out where he was skeptical about the fed taking on the hike. he said the fed will not be able to raise rates 100 basis point the year without threatening to undermine the recovery. the recession will come before there's room to cut rates enough to offset it. he's talked about the idea of the neutral rate of interest eating much lower than people think. what is your take on this?
>> it's tough to focus on. larry summers is billion and i don't doubt for a moment that he has a better grip on than anybody else. it's very by about five percentage points over a cycle and even janet yellen said our best estimate is 2% points or more. when you have that kind of uncertainty to focus on the neutral rate as of policy guy is a mistake. the issue is how fast is it going to rise? the fed cannot hike any faster because it would mean extreme tightening in the market. fast the cap on how fed can raise rates. one thing we don't know is where it is. probably about a two percentage point band. we think it may be below zero and coming up toward zero, but where does it go from here?
rolls exactly the feedback the fed has been telling us it's trying to do. it depends on the state of the economy. larry summers has been pretty vocal on how we are stuck in secular stagnation. do you think the fed sees any validity in that stance? >> the have to implement the increased slowly. it gives credence to the notion of secular stagnation. everyked before about how , they are alll short run models. , we don'tve years out have a clue. theirfor the fed to lower
-- some of the data has actually been pretty good. the other thing comes to us from deutsche bank, looking at the spread between the six-month and three-month rate. that's at the highest level in seven years, implying a faster rate hike cycle. >> you have to be careful what kind of market signals are being given. the fed should not be following the markets. they should follow grow fundamentals. is it new information, or is it processed information? i think it is processed information. focus on the macro fundamentals and let the markets follow. is starting to follow the markets way too much and if they continue to do that, the a inherently
unstable cycle is something we want to avoid. running idea that were out of labor market slack and theoretically we get higher wages. you point out is not that clear. if you look at the pace of hiring relative to the pace of see the chartyou right there. you can see the pace of hiring has dropped quite rapidly. what does the chart tell you? >> the key to wage increases when you're buying labor. that's what happens when you hire somebody. when they are posting job openings they are just shopping. there's a big difference between a shopper and a buyer. it's when you start buying labor or hiring, that's when you see that wage increase. we have not seen the pace of hiring keep up with the pace of job openings. it means there reluctant to pull the trigger and offer higher wages.
with full time you have obamacare. we don't know how much the labor is going to cost. a lot of uncertainty has dampened the man for raising -- demand for raising wages and more hiring. staying you will be with us. we'll be back with more on the u.s. economy. breaking news on nike. stephanie ruhle is on the phone. what can you tell us about nike and lebron james? >> nike is signing a lifetime deal with lebron james. we've never seen this before. we can confirm nike's agreeing to a lifetime relationship with lebron james. we see the potential for this to continue and grow throughout his playing career and beyond. what they are saying here is,
when lebron james is done playing basketball, they will continue to sponsor him. i guess one would compare it to michael jordan. the michael jordan rant is on to its 30th edition of jordan sneakers. michael is far removed from the game but you can see nike really created the power of sports brands. they see the value in that. they've never said officially they have a lifetime relationship with michael, but this is the first time we've seen a partnership like that. it's big news in the sports world. is there any monetary value placed on this right now? lebronou are speaking to , you would say there is no value you can place on it. right now lebron does not have the number one selling shoes in the nba, steph curry does.
it's time to what player is currently winning. why he is the number one guy out there. kevin durant, who has the ,iggest shoe deal out there over 350 million dollars with nike, and he really hasn't done much, but lebron james is a guy who wins. he has become much bigger than the game, almost like michael jordan has. thanks so much, stephanie ruhle, joining us on the phone on nike and lebron james with a lifetime deal. we will be right back. ♪
alix: we'll be right back with bill of citigroup. fedalk a lot about what the hike cycle will look like. citigroup has a great projection of how slow it will actually be as compared to the average. the orange line is the average in the last hiking cycle. the blue shaded area is the range of hikes, and your forecast is the yellow line. they give us the impression this cycle and every past cycle may be one or two percentage points on average. i'm trying to demonstrate that when the fed's about slow, they really do mean low. here i have the rate going up by pointd of next year, one 5% by the end of 2017 and 2.25% by the end of 2018. that's why i think larry summers
is wrong when he says the economy will get depressed with the hikes because the hikes are so slow. what the rates are trying to do is correct though market distortions that are out there and fix the economy from the potential crisis we had in 2008. it's to get rid of distortions in the markets. risk,t: terms of 2016 what you see is the biggest one out there? larry summers thinks we might have to start tightening -- loosening before we start tightening. what is the biggest risk? the biggest risks are coming from outside the economy. a 40% risk of a global recession. that will translate into a u.s. weakening of about a quarter point, as long as the exchange
rate does not go nuts. if it anticipates faster than we anticipate -- if it appreciates faster than we anticipate. the exchange rate linkages are very strong and secure. joe: the ecb did not deliver as much as people thought last week. trajectoryange the or was that just a blip? >> that was just a blip. they will fine-tune the rate increase. much.t: thank you so alix: a potential political seachange in france. an unprecedented win. will talk about the economic implications, next. ♪
alix: i'm alix steel. "what'd you miss?" friends.urn to the country held his first round of regional elections on sunday. london is them codirector of open europe, a think tank that covers the region. thank you for staying up so late for us. when you take a look at the map of the voting, national front is ahead in six of the 13 regions. botheader and her knees won more than 40% of the vote in
their regions. what is the number one reason we are seeing the shift? >> a big driver is the economic growth or lack of it in france, the high unemployment in particularly the high youth unemployment. the anti-establishment feeling that is growing it france, and the economic malaise we've seen over the past two years. about how you ask would characterize the party. when you read an article, it will say the right-wing national front. she has -- she eschews that label right wing. risk that she draws from the left as well as some of the former union and industrial areas that have been left behind in the new economy? is that a greater issue than people appreciate? >> i think very months so.
it's wrong to characterize her as either far right or far left. she's very protectionist, she wants to build up the old french industrial base and protect and companies. she is strongly nationalist and talks a lot about sovereignty of france and taking back control of both economics and politics. it's interesting in these lectures that they gained ground in a number of regions from the industrial north to the richer south. a very widey have appeal and the taking votes from the left, right, and center. this is building on the anti-establishment and anti-politics where a lot of the support for the old parties has gone stale and it's just the same people over and over again. she has eroded that. round of thesecond
regional elections will take place next sunday to determine the final result. in the past we've seen the national front do well in the first round and then fall apart in the second round. what is different this time? >> this time they are clearly ahead in two regions and i think they will win those regions. that highlights the transition from being an opposition party to being a syrian party -- serious party to be. there are a number of other regions where they could gain big support if not win. it really would be a watershed moment where they have some power and they can begin to be seen as a credible force in france. joe: how appealing is the national front to the younger voters and what does that say about their future? >> we don't have a demographic breakdown but exit polls and
surveys suggest 18-30 year olds, clearly the have a slightly higher proportion of youth vote. partly because of high youth unemployment and the lack of young immigrants. the economy and the country as a culture is not going in the right direction. there is also national pride issue here. years france few has been dominated by germany. a lot of the youth feel like they lost their identity. is not just france, we're seeing it in poland and here in the u.s. as well. it's middleu.s., income jobs that have disappeared since the recession and are not coming back. talk about the structural shift in how long that can last.
as very much true, the antipolitics movement we're seeing in a number of countries. that these parties that of been in power for so long are taking a look, they traditionally take people from two or three universities in france. they go through the same background. feeling that it's all very these parties and in french politics, and in other countries, is boosting the antiestablishment vote. people are looking for something new and fresh that offers an alternative. front hashe national a certain platform, anti-immigration, reestablishing european borders. a lot of their proposals have started to show up in the left and in the executive branch, they are no longer on the fringe, are they? >> this is part of the seachange.
we party scene sarkozy trying to respond by stealing some of foreign nationals policies. he's talk more about reinstating border controls and has become a bit more protectionist, talking more about helping french companies. they also have to come up with something else because that clearly did not work in this round of elections. they need to freshen up their policies and representation. otherwise she will only go from strength to strength. alix: such a pleasure to have you, thank you very much. scarlet: coming up, easy money and the confidence that comes with it. el,explained the term bezz next. ♪
security is announcing a new terror alert system. jeh johnson said the details will be announced soon. the third terror alert system put in place since the 9/11 attacks. the color-coded system was replaced in 2011 by the national threat advisory system. a man accused of stabbing two people in london was in court today, charged with attempted murder. prosecutors say that he had images associated with islamic state on his cell phone. he will be detained until another court appearance. is passing hillary clinton's numbers as secretary of state al. clinton covered 1000 less during
the year on the job. kerry hobbled his leg. tohas seen 77 and she went 112 countries. you get the stories at bloomberg.com. i am mark crumpton. back to you. scarlet: thank you so much. let's get a recap on how the markets closed. the s&p 500 lost 15. and the dow lost 117. fore is no economic data following energy prices. drop.t continues to >> the numbers do not look bad. >> a good point. the numbers go down and we did not see that at the end of the day. it is positive.
in terms of oil, where will the bottom be and has everyone thrown in the towel? no one can point to something that would have led to the selloff. scarlet: it was odd when it came and no one really linked that much with the decision. we talked a lot about the hedge funds seeing a painful year so far. i want to show you that with commodity hedge funds. commodityk at the index that tracks the performances of all of the commodity-trading strategies. it is down 10% or so. this is a commodity index that has seen a steady decline. period.f in the the hedge funds are seeing assets shrink. there is much less money being put to work. alix: of course. why would you do that? you look at the chinese fx
reserves they came out and they caught my eye. decline and it fell in november, raising a question fx.t capital flight due to they say $20 billion of this is because of a weaker euro. scarlet: you cannot just -- joe: you cannot just look at the number and know everything. there are different moving parts. alix: it is an issue for the markets. scarlet: i want to talk about the energy fallout with norwegian manufacturing down 8. 4%. we do not need to say anything. the kroner is getting slammed. scarlet: it has not really
worked. corporate credit has been experiencing a fuel boom. what is it? why does it hide risk? here is the executive editor. thet varies in size with business cycle. in good times, people are relaxed and trusting. the money is plentiful and there are many who need more. embezzlement grows zzle grows rapidly. the amount of money in the system associated with flim- flammery is growing. intot me put bezzle context. and aan important concept
useful literary crotch, if you are a financial journalist. between wheniod someone has been swindled and when they realize. there is an increase in the confidence between both. the embezzler feels good, because he has taken money. thinks they still have money and that they are getting it back. $40. we are both spending in reality, it is $20. >> you will find that it is useful to bring this up because it tends to happen when we see and everyonemoney feels good about it and make ad investments. -- bad investments. joe: companies -- scarlet:
companies are doing also to things to increase dividends. what kind of risk does this mask? joe: the bezzle is not necessary aily illegal. bfuscatory. off th >> you think you are getting more than you are. it is useful for the corporate bond market. we have seen the market grow astronomically as the chart showed previously and we have allocations of money managers and corporate ions at a record high. at a record bonds high. people are holding more corporate bonds ahead of the interest rate rise. in my mind, it suggests a bezzle and denial on the part of the investors, as well.
joe: what does it -- scarlet: what does it allow the -- alix: what does it allow the investment community to do? >> it allows the funneling of assets and we have seen this in credit and we have seen investors buying credit indiscriminately. we are beginning to see the shakeout. joe: how do you make a histinguished min between the bezzle. >> part of the boom and corporate credit fuels the stock market. overall increase the wealth effect in the market and people feel confident, even though the confidence might unnecessarily have a basis in reality. when the bezzle is over?
scarlet: what did you miss? it is time for the biggest stories. carl icahn has thrown a wrench into a plan to buy the auto-parts chain for $15.50 a share. trigger to deal is a the offer. >> the federal trade commission challenges the merger of staples and office depot. they plan to contest the decision and propose to buy office depot. they would combine the exist retail suppliers in the united states and reduce the industry to a single chain. scarlet: more on a lebron james deal. it is the first lifetime deal in the history of the company. it exceeds the deal kevin durant
signed last summer. he has more shoes than any athlete, other than michael jordan, according to yes the end -- to espn. let's talk about terrorism and the u.k. joining the fight against terrorism. david cameron discuss the events. david cameron: the threat is real and the question is this -- do we work to degrade and destroy the threat and go after terrorists in the heartland or do we sit back and wait? scarlet: joining me now, a macroeconomic director. terrorism has shaken the world. more so, the threat of attacks hanging over everyone. what kind of affect with this have on the united kingdom? -- what kind of effect with this have on the united kingdom? >> it is difficult to tell how
this would inhibit investment. companies are more reluctant to prepare for the future when it looks unstable and scary. this may be an issue for the united kingdom. on the other hand, it may be that the government ends the contractionary policies, i.e. takes consolidation, and fiscal expansion. it would be good, in my view, and late coming. -- late-coming. it would be positive for the u.k. economy. having said that, i must say, as a londoner, londoners have always been a target for 1860's whenince the
they first started dropping alms bombs. , ande 1930's, the ira 980's.h the 1970's-1 joe: you mentioned the fiscal picture and george osborne said that he wants a balanced budget by the end of the conservative term. is that feasible before this? does the expansion of military spending we are like me to see below any possibility of that out of the water? ann: it is a very rigid target and it is probably ascertainable. u-turns.ve to do more just this last week, he had to u-turn over the question of police numbers.
who knows what security will have to spend? i thought the target was unsustainable and inadvisable, in my view. the economy is weak. andave an account deficit we are vulnerable to external shocks. scarlet: this comes with the threat of grexit looming over the next few years. think theoint is, i open borders approach of the the --e, the approach of just allowing things to flow unfettered, unconstrained, across borders -- it has allowed in tax havens and fraud. money laundering is happening here in london. it worries people.
criminals are skillful and adept at using these money flows. it is a thing that worries us about the european model, in particular, the eurozone. i think that it is growing a general feeling of insecurity, in my view. euro,ll help the anti- the brexit, position here. there been enough to stop islamic state from accessing the taking system, however they get their money? i am not next. on terror financing. on terrort an expert financing. it seems easy to launder money
and the housing market is a haven for those kind of money launderings. quite a lot of fraudulent money. there is an increasing anxiety about the usage terrace make -- terrorists make with the free flow. after 9/11, bush tightened money flow and money laundering regulations. achievehas far to go to that kind of thing to prevent those sorts of flows of illicit funds. scarlet: it is a vulnerability in the global financial system. you are sticking with us to talk about the challenges facing central banks after the break. we will be right back. ♪
joe: what did you miss? we are going back to the policy director and there was a recent op-ed about absorbing higher interest rates. did you agree with that? i think it is true and he talked about private debt. corporate and private. individual and household debt. i think he is right. i do not know what he means by "neutral rate." the impression is given at the real rates are low and i want to contest that. the real rates are high, in real terms. and, in comparison to the historical period preceding the
crisis. it is that which is inhibiting recovery. it is a mistake to think of government rates or federal fund rates as the rate that is important to the real economy. it tends to be irrelevant. it is relevant to banks, of course. and, financial institutions. in reality, one corporate undertake risky entrepreneurial activity, the rate they are charged for the borrowing is very high, in real terms. .t is what is inhibiting joe: they dropped the rate to able to they were not cut the nominal federal fund rate below zero. what would have been the proper
policy path to get real rates very low? ann: the fed and other central bank do not regard as their responsibility to manage their influence with the full spectrum of lending rates. for short-term and long-term, for safe and risky lending, in real terms, they regard the base rates, the policy rate, as most important. what is important to me is for the federal reserve to issue bonds across the spectrum of lending, so that the investors have someplace to put their money for short-term and long-term purposes, for risky and safe lending, and the fed, doeed other central banks, not regard as a responsibility to provide different ranges of assets into which investors can
influence rates across the spectrum. that has been the problem. joe: let's look at the transmission mechanisms of qe. suppresses rates and, to some extent, there is the attempt to manipulate the rate beyond the short-term policy rates. that is not enough? has the point is that qe not achieved what it set out to do, to encourage increased spending and investment in the economy. it has created -- it has actually directed liquidity into assets and inflated assets, key existing assets, and not new activity. it has not had the desired effect.
we are talking 4% in six quarters, since the first quarter of 2014. alix: i am looking into wednesday and i am dying to find out about the china cpi number. well, with data, as oil prices and the consumer price index. upant to see how it holds without food and oil. i am excited and i will talk about it on monday. joe: there are two economic data points i'm looking at. there is an optimism survey that comes up. they asked small businesses a bunch of different questions. can you find what others -- to find workers? you get -- can you find workers? you get a lot of data. jolt report and we will see people quitting their job rate.e quit