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tv   Bloomberg Go  Bloomberg  January 4, 2016 7:00am-10:01am EST

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iran after an attack on the saudi embassy and we will see what this means for the price of oil. life in the fastlink a new team that will have to do without fat profits from ferrari who just went public in europe. you thought you were going to ease into it he 16. we are here to help you, a "bloomberg ." the markets are all over the place. colleaguehave a joining us from london. to 2016, andrt
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ugly start for the bills. dashboards. larrynie: think about summers and carl who said don't raise rates. larry fink said we are facing 2% growth. the circuit breakers might be telling us we are falling out of bed and we could be in for a rough ride. david: it's not all about the center -- central bank. >> i would not be concerned about the -- a chinese economy based on a shanghai move. stephanie: it's a new year and new markets and stocks around the world are slumping but they are being led by this route in chinese equities. it triggered a market wipeout. yielding currencies tumbled as investors are turning away from risk over concerns about the middle east. , let'srabia and iran
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cover this with our bloomberg global team. as wellve to hong kong as mark barton in london and matt miller is here breaking down the markets in new york. we will go through this with everyone. let's get you some first word news. vonnie: the refugee crisis is orking western europe's policy. danish leaders were angered by sweden's decision to start imposing its own border checks to stem the flow of middle eastern refugees. that could lead to a logjam over refugees in denmark. an antigovernment groups as a plans to stay at a federal wildlife refuge in oregon. members of the group have taken over unoccupied buildings and protesting present senses given to two local ranchers. police are staying away so far. president obama plans to carry out his promise to try to restrain gun violence.
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attorneywith the general to discuss potential executive action. the president will hold a town hall meeting thursday on guns. take a look at china, the worst start two-year ever. we will have more throughout the day. you can see the china shanghai complexes down 20%. they shut the market for the rest of the day after the first warning. in europe, i want to highlight the dax. it's down 4.3%. it's continuing to decline. mark barton will join us in a moment to show you the rest of what's going on in europe. look at futures at home. we have the worst days since august and futures. down and thes are dow jones, 312 points. crushed to kick off
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2016. we were down for 2015 as well, slightly less than 1%, but a loss for equities in 2015 print it's looking bad for the start of this year. crude oil is -- has been showing some games. there was a yearly loss. down 52%,ck years, the biggest slump ever in two years. we have a new system for bloomberg users. g#btvn type emerging-market stocks are in blue -- are in white any oil is in blue and the correlation is about 05 or .6. this is a look over the last six
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months. emerging markets are coming down as well. we are going to go around the world with bloomberg reported today and start in asia. tell us about china. morning, it's as sad a start as china could of corporate on one side, there is the macro angle, the weak manufacturing date to over the weekend adding to fears. we are not seeing any real turnaround on the manufacturing side of things yet from china but was not a major surprise. some say the bigger reason behind the selloff today were technical factors. are anticipating a lifting of a ban on major shareholders from selling their holdings sometime this week or in coming weeks. when china had their $5 trillion market rout last summer, the group intervened and one measure was to put a ban on big shareholders from selling.
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that ban is expected to be lifted soon. selloffreason for the was the considerable support for stocks during september. while this reflects the macro side of things, the week manufacturing data is also linked to technical factors. stephanie: what about the technical impact of testing new circuit breakers? when we see that happens, market participants will sell into it to see how it's working. they don't trust the system. >> that's exactly right. today thatfeeling the circuit breaker exacerbated the selling pressure in the chinese market. is the first time we have seen this in use. this is what they introduced in response to the big selloff last summer. they went around the market and what they came up with was a circuit breaker where if they
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lose 5% of more, they will shut down the market for 15 minutes and let things calmed down and resume trading. the problem is come up the rest for the exit doors and no one wants to hold losses. when trading resumed, the selling continued. there is a view amongst people that perhaps china has set the threshold to narrow. stephanie: thank you for joining us from hong kong. you don't seem fazed by this. if you think about last year, were up on china. could 2016 be the year the house of cards in china fold? the xp market does not need a reason to be down. you saw that yesterday -- he saw that last year.
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throughout 215, manufacturing was ugly and services are ok. last year, suspended ipos, they banned the selling to some of the big funds. if that comes back in, the technical move will be more important. david: there are no big surprises here. the underlying they do is not surprising on the downside. when they imposed the ban on the selling, we knew there would be a day of reckoning after six months. what happens next? thingost important over the weekend was data. manufacturing was ugly and services are good and what will drive policy? stephanie: even if you're not getting new news, the news that is a potential reality, this could be the year. , and thedp in china u.s. is 400%.
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and the u.s. per capita income is $48,000 per year and in china, it's six point $5,000 in productivity is not going up. the result is you will have a problem like japan in 1990. >> i don't see that. pboc has more capacity to do more. it's similar to what the fed can do. the fed put off something much worse. i don't think you'll get a signal from the shanghai composite being down 7% for those to invest in america. what's happening in european markets? >> happy new year. getting hammered. for whatever reason, look at the figures. x is down by 4.2% and its
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indiscriminate. it's every industry on the stoxx 600 are sinking. basic materials is down by 3.4%. glenn core is down by 7%. sector last year fell by 35% because of worries about china. rising stocks today are on the stoxx 600 which had its worst december since 2002 but for the year, outperformed the country world index. money is moving into the euro today. it seems to be a safe haven currency. the flight to safety is pushing investors into the european bond market. look at the yields. you,e i hand it back to
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strategies in europe remain bullish on european stocks. they are forecasting a 13% rise for the euro stoxx 50. they are cheap compared to the u.s. peers. there is three letters that b which stands for the european central bank. investors are choosing to ignore today's decline in our bullish for 2016. been ignoringve those recommendations for about a month now and you had a bad december over there. we hear the same thing on the side of the atlantic the european equities are the place to be and yet they are not buying even though they are cheap. was it got it, take for them to start buying? >> money is flooding into these funds. bank of america said 30 out of the less 32 months, they have gotten money in their european funds. they are not buying today but let's see what happens tomorrow
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and the next day. don't forget the earnings. last year, europe and were forecast to grow 10%. is there going to be growth in the u.s. stock market? growngs are expected to percent this year, 4% next year as well. look at today's manufacturing data rising to the highest level in 20 months. what stood out is for the first time since april, 2014, manufacturing expanded in every nation surveyed by the markets. today is gloomy but the backdrop strategists are telling us to buy european stocks. >> thank you very much. there is a difference between fundamentals. >> what are we talking about? stephanie: we were talking about european equities as a positive. this could be a trade opportunity.
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were talkingwe about the fundamental economy in china but that's not what we refer to as opportunity in europe. >> we are talking about both. you are seeing a pickup in the data. you saw it in the pmi this morning. pain on theve periphery. the long call on european sweden and spain. it's not all about the dax. stephanie: how about saudi arabia? arabia is cutting ties with iran a day after its embassy in tehran was attacked. we go live to do by with more. -- dubai with more. is this the straw that broke the camel's back? what happens next? as you said, they are
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fighting property wars. these -- these are active proxy wars. saudi jets and troops are on the ground in yemen. i think this is the straw that broke the camels back for the saudi's. in iran, there are two sides to it. whoe is the supreme leader has come out and made some very strong comments, talking about the blind hand of revenge for the execution of this cleric whereas the president was softer in his town where he condemned the sacking of the saudi embassy in tehran. i think that shows the competing interests inside iran with a rainy and president not looking for confrontation six weeks before an election where he is up against the hardliners.
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what else the saudi's will do. they are already fighting wars and supporting opposing forces across the middle east. for the moment, i think this is it. and said donut off may have followed suit so there is a domino effect a little bit. stephanie: is saudi arabia -- is saudiissue or arabia facing revolution? could they on their own face a revolution? isi think saudi arabia concerned about unrest in saudi arabia especially in the eastern region where there is a shiite minority.
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why when the arab spring happened, the saudi government put a lot of money into housing and creating projects and investing in infrastructure. because of the drop in oil prices now, they have started ramping back a bit and cut subsidies. announced gradual reduction in fuel subsidies and electricity. step back.o one of their concerns is that the social contract that the saudi ruling family is in control but they take care of the population, yes, i'm sure they are concerned this could lead to unrest in saudi arabia. david: thank you so much. you have something about the risk? matt: i want to show these risk scores put together by the economist intelligence unit. on top, you see iran which is a
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risk country politically, economically and historically but that risk is coming down. it's getting safer and safer. saudi arabia on the bottom in blue and you can see this chart on your terminal, they will get riskier and riskier. if a hell of a lot of issues going on with more turmoil. iran is the one who reacted by saying they should not have invaded your embassy. they had the police go in there and arrest those people. saudi arabia reacted by a closing the iranian embassy in their country. royals reversing your little bit stephanie: saudi arabia as a country where 80% of their economy is dependent on oil. it's not really doing anything significant. we have to move on. the chrysler is in focus trading without ferrari for the first time.
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we will go to italy for today's global story. we have more to cover we are just getting revved up "bloomberg here on."
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to italyday we go where for robbery is followed up its wall street listing with a stock market debut in milan. this completes the spinoff of the carmaker from fiat chrysler. here is john elkin earlier today. chrysler has a clear scope of activity, it's the seventh largest carmaker, and has an ambitious plan ahead. it has a great leadership team. we go outside the milan
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exchange. good morning. it's the beginning of a new year. error -- after almost 50 years, ferrari has separated from fiat chrysler. valueore than doubled the of the stock so it's good news for fiat. way anduld find its execute it business plan before looking for a merger. robbiegest challenge for -- four ferrari is to become a luxury carmaker. limit to the usefulness of the application of the brand in areas which to reflect the exclusivity. that's what we need to be
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careful about. you cannot take it anywhere. otherwise it loses its value. i think we will be incredibly visible. what he said today is you want to double up the brand but you cannot it everywhere. you put a ferrari badge and a toaster, does not get faster. this is the main challenge for them. >> we should probably just talk about fiat. going forward, ferrari trading like a luxury company is understandable but what is the future of fiat without ferrari? asked sergiot i marky on the today. uni - uni march marchionne.
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he has to initiate a five-year business plan. said that they are still looking for a partner. andebuffed them last year now the focus is to execute the plan before looking for a new partner. he also said this could happen after 2018. they may fight a new partner after marchionne leaves the company in 2018. matt: bharati shares have done poorly. i talked to an analyst over the weekend and said the only people getting into this aggressively are hedge fund guys think ferrari can double its production or they can raise its prices. sergio think even believes that's a possibility, right? >> he has a plan.
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he wants to do deliveries to 9000 in the next four or five years. it's 700 nowadays. it's about 25% more ferraris. 25% more revenue and the margins are good. still, the big challenge is to double up the brand outside carmaking. at the moment, they are almost starting from scratch. race has been public since october. what do i care the most about? it's not that it's trading in malan today. today is the first day that fiat chrysler is trading without ferrari. they are spinning off the remaining 80% of their shares. it's an ok take her. they should have chosen enzo. david: that would have fixed everything.
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ferrari hasand it, a higher profit margin than fiat. if you take ferrari away, white mean that the fee of profit margin will go down? the question is why he did it. he got almost $4 billion with some cash payment. he managed to reduce the fiat debt. he could have done this a once in his life. stephanie: the fiat jolly is my favorite car.
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i have to ask you about oil. these cars burn a lot of gas. matt: they definitely do in this oil price is not affected by whether you buy a ferrari. it is coming up right here. if the oil price comes back, it could relieve some of the tensions between saudi arabia and iran. if you look at a five-year chart in oil, it has gone down, down, down, 62% in the last two years. oil is maybe inching back. we will be back in a few moments. ♪
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stephanie: we are talking global markets, but you're looking at a
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live shot of our nations capital. that's right -- washington, d.c.. welcome back, you're watching bloomberg. it is the first day of trading in 2016 and it is a very big market morning. here is jonathan ferro. have great to have you. tom cole and they say i'm not allowed to be on the set as jonathan ferro at the same time. david: the insurance companies worried that something might happen with you two together. tom will give us thenie: morning must-read, but vonnie quinn with the first word news. vonnie: the flooding in missouri may take months to the waters are receding after floods cause 10 inches of rain over christmas morning. 25 people were killed. the government offices in san bernardino, california where for two people died in the terror attack will reopen today.
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almost 600 employees will return to their offices at the inland regional center while the two main buildings will be open, the actual conference center will remain closed indefinitely. donald trump's first tv ad of the presence of campaign will air in iowa and new hampshire. the ad focuses on terrorism and border security. says he vows to spend $2 million a week. than 100 journalists and 50 news bureaus around the world, i'm vonnie quinn. must-read top morning hits close to home. tom: as my editor in chief from bloomberg, d want to pick a number for 2016? how about 20%? look around the politics of the western world and you'll see that a lot of once unthinkable ideas and fringe candidate
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suddenly have a genuine chance of succeeding. 20% world is going to set the tone and democracies on both sides of the atlantic. it goes to the surprise but you and i share 12 months ago when we saw the swiss national bank out of the blue stone people. what to you in europe is the shop this year like you and i witnessed 12 months ago? johnathan: not by divergent money policy but shock and all. met inthe ecb that december 13 coming into this year, a lot of people look towards the fed. be slow andll gradual, but you can get a price from the fed as well. tom: all they talked about was 20% donald trump. david: it is not just central banks. we have got brexit. it's only a one in five shot for any one of them, but we could have a dozen one in five shots. stephanie: look at bernie
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sanders. lastly, donald trump called him a wacko. bernie sanders is trading at 5%. jeb is no worse than bush of the bush family dynasty. yet your head around that could -- get your head around that . stephanie: 20% this 20%. abouthan: we are talking winning in spain and that has not happened. the big story out of europe in 2015 is worth considering for 2016-2017. the political noise that we heard was no bite. we are hearing a lot of noise again. that one in five develops into something real, not yet. tom: what do you see in the currency and adjustments of the last 24 hours? what does it mean that if oil is stable or up that the mexican peso is weaker and the ruble is weaker?
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is that a precursor? for lower oilsor prices? johnathan: if rent goes lower, they get hit hard. the story for the morning is that brent is only up 1.5% despite what happened with saudi and iran is remarkable. i do not want to cherry pick the narrative. the longest story in the oil market just proves how resilient that is. you can have attention with saudi and iran and have the moves. tom: you cherry pick the discussion to go with asset. the more instability that you have, yes, it's bad for global markets. what will it mean for the election? if you look at somebody like bernie sanders who is able to pull together pensioners and city workers and students, it is this kind of activity. these are the people who vote in
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the primaries. it is so crazy it just might work. tom: to a person, every pro tells me the political dialogue will have next to zero affect on the markets. stephanie: will the markets have an effect on politics? tom: i would say minimal. david: the larger point here is that these are all symptoms. all these 20% are symptoms of a larger phenomenon of real anxiety on the part of the populace. whoever gets elected, that does affect markets in the long term. what has: that is gotten somebody people behind him it's like donald trump and bernie sanders. the more market unrest that we get a global instability, the more strength it gives these guys. johnathan: tom keene is staying with us to discuss hedge funds. you're not going to have to pronounce it much longer because they are shutting down . johnathan: the firm will return
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all $150 million it manages to investors by next month. laura joins us now. the announcement rounds out a tough year for junk bonds. his essay hedge fund story or a credit story again? laura: i think it is both. you cannot divorce this particular hedge fund from credit. it's by definition what distress is. you have a story that you cannot divorce the two. it is both really. stephanie: the issue is that this fund had retail investors. it is a $150 million fund. what were retail investors doing and high-yield to begin with? but kind of applets could we see out of broader credit funds -- what kind of outlets could we see out of broader credit funds. ? laura: we do not have to have a
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million-dollar investment like the inquest that would require. you can have liquid all funds as well. it allows investors like you and i to put our money alongside one of these hedge fund clients might do. you see retail investors get scared and obviously credit has been down. people pull their money out. when that happens, funds like this are not able to keep going. sometimes you will see that this fund is starting to have its investment simile invested with its actual hedge funds. that is why that shut them. stephanie: the issue is where are we in the credit cycle? it was energy that drove high-yield down in 2014, destroyed it in 2015. here we are in 2016. oil prices are not turning around. there's more uncertainty in the high yield markets. if you are starting to believe that we are ending the cycle in high-yield, where our asset dollars going to flow? a very mixed
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picture with the end of the year and reading about the high-yield market. that is certain distress points, but there was a certain optimism about selective parts of the high-yield. what i would really underscore is that i have lost count of how many years of underperformance we have had in the joy of taking a 2% annual fee and 20% of the game. forget about the volatility that you see with mr. ackman and paulson. stephanie: we are not seeing money leave hedge funds. we are seeing money leave weaker performing hedge funds. the big behemoths are just getting bigger. go with that, but within the consultancy that is striving that observation, it is the tangible idea of desperation defining return. david: we have had several guest on here who have said there are structural reasons why the big
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investors have to put some money into hedge funds. talk about that consultancy. this is what i look for. we always ask the question that stephanie just asked. what were retail investors doing in this? at some point, those retail investors will find lawyers. tom: i think the retail thing is tangible, but it is over weighted and consumed rather by the institutional desire to find alpha. it's the baloney word. stephanie: zero interest rates puts us in this position where we were scarred for returns. there were no defaults out there. people said i guess this is a place to be. high-yield were trading at 6%. johnathan: 18 months ago was the last time i was in new york. you know what we were talking about? high-yield. 18 months later, i think we spend way too much time talking about fee structures and hedge funds. talk about the credit cycle.
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the fact that high-yield starts junk again is significant. many companies should never have gotten finance that these rates could they have to go out to market soon. stephanie: jonathan ferro, it should start looking like junk again. we should not see triple c companies issuing covenant like deals. it does not make sense. matt: you think junk-bond should look like junk? i want to get a point that david has been making for a number of weeks. this is that regardless of concern about hedge funds or , there areyield still inflows. the top is volume, but the bottom line here is flows. they are positive and have been since the timber and october. -- september and october. even though we get all this bad news, and the same is true with hedge funds, used to -- you see people putting money in and taking money out. or 2.2 5% got zero
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and people are looking for alpha or some sort of better return. tom: stop the show. excuse me. are you using all these great letters? stephanie: he is allowed to do whatever he wants. tom: i thought as what we did. i thought i was being condescended too, but i'm not sure. [laughter] i want to go back to distress for a minute. a lot of people say i want to be in this distress market. who should be in distress and special situations? massiveou have got a research team, that is not a business you should be in. people say i followed the last one and it didn't work. you should not be following. bill ackman a bad year or david einhorn had a bad year, but listen when you make concentrated bad bets like that, that's what you do.
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you are swimming in the deep end of the pool. investors like that maybe not the people to follow. david: isn't this called the fault? tom: the market correction is like in the movie "the big short" --i want my money back. stephanie: they one of their money back from mike murray and he returned 400%. hang tight. laura keller, thank you. tom keene, we are going to send you back to radio. matt, give us a market check. matt: the dax had a love the session of 4.5%. it recovered a little to 4.2% drop. if you look at my terminal, you can see a look at the dax for the year. hard on the first trading day of 2016, you can see that we have been lower in september, in february. the dax has been lower. it is a very rough day for
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markets. that comes from china and translates into u.s. futures. take a look at where we are at right now. dow jones contracts down more than 300 points and s&p mini contracts down 1.7%. johnathan: we talk about europe much. we finished the year up 10%. does the first year of 2016 tell you about what to expect for next year? is: what we are not seen catharsis. i've seen none of the blood on the streets feel. you need either month for down to have a market bottom or topping. stephanie: remember that old adage -- at that first day of trading leads to a bad first week leads to that first month. that is a risk here. there is a sentiment risk and we not starting the year on a high note. david: the one thing that i think all experts agreed on is volatility. the fact that it is down a lot does not tell you much about where it will end up.
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it may end up sideways, but it does indicate we are going to have that volatility we have been seeing. tom: i would suggest the work where she looks at long-term trends. she enters the year with a lot of caution. johnathan: do you know what they say whenever one starts to be bearish? look at the front page of all the newspapers. bears, bears, bears. almost everyone under the sun right now is a very. tom: could we get david westin to talk about beta? david: ben graham said you want to sell the optimist and buy from pessimist. there's a lot a pessimist out there right now. right, we are going to return to one of the biggest stories of the day. saudi arabia cutting ties with iran in the biggest standoff since the 1980's. tensions are high in the middle
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east. we will go over that and more when we return. this is the first day of trading in 2016. you are watching "bloomberg ." ♪
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vonnie: welcome back to "bloomberg ." here's the latest bloomberg business flash. nine deaths blamed on airbags and honda is claiming its defective airbags killed a young pennsylvania driver. the recalls affect 23 million vehicles and 11 automakers. a record amount of money flowing into bonds according to black rock. third of the new funds have investors using etf's to replace derivatives. that is your bloomberg business flash. we continue now our
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conversation about saudi arabia cutting ties with iran. the class between these two major oil producers is sending prices up a bit. we will see how long that lasts. former u.s. ambassador to saudi arabia robert jordan joins us now. and let's start with you. . now see that it is downgraded iran has joined bahrain and severing of ties. what is going on in the gulf? >> we have seen the division with saudi arabia and iran play out amongst regional countries. relationss have cut and bahrain joined them. uae downgraded and there's reports that they may be joining the saudi team. ofre's also a grouping sunnis and shiites on one level. it's how other countries behave. it's a power play on how there is this proxy war between syria, yemen playing out in diplomatic
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fronts. david: the ball is in iran's court. saudi arabia has sever the ties. what is iran's move? kambiz: iran has to find a way to reach out to saudi arabia and bring back this diplomatic crisis to a situation where they can manage it. i think the development have caught the iranians by surprise with how fast things are moving. this is the last thing he wants right now because who wants the country to focus on the nuclear deal and investments going to iran. with this happening, it will scare off investors. david: getting the sanctions lifted. johnathan: you said it with the two proxy wars. an escalation? yes. a surprise? probably not. on one side, the united states has that i like saudi arabia and on the other side, a nuclear deal with iran. what on earth do they do with the escalation? kambiz: one is escalation with
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iran could you did not expect demonstrations to attack the sout saudi arabia embassy. they have to condemn their own protesters, but they have to soft-pedal the attacks in saudi arabia. that has to put them in ought with the regional country. they want to show themselves to be a responsible country and open to the world. that is the message that we are ofew iran and no of amended job. they need syria and yemen to make up without actually accelerating this further. served in saudi arabia after 9/11, clearly at time of great tension. compare that to the tensions we are seeing now. this is geopolitical risk that has investors so concerned. robert: i think the tension after 9/11 was probably greater if you looked at it over the long scheme of things.
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i will say that the temperature right now is rising. i'm not sure that we have seen the end of escalating tensions here. i do think the markets are justifiably concerned. this is a situation that also reflects a tremendous challenge to the saudi leadership. the price of oil is down. their budget is gone haywire. lot year's budget shows a of belt-tightening, which will not be received well by the population. they are trying to come in with a strong hand. theirre trying to show own population that even peaceful dissent will not be tolerated. a lot of this has to do with saudi domestic concerns as much as it does concerns about iran. david: as exactly what i want to ask. why did saudi arabia execute this fairly prominent shiite cleric? was this a blunder or does this indicate something deeper about the insecurity of the saudi regime and the real concern particular about the eastern
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provinces? robert: i think it does reflect something deeper. there and mind that the saudi's look back to the fall in iran in 1979 as something they did not want to repeat in saudi arabia. they wrap themselves in the legitimacy of the religious establishment. people back in 1979 feet ayatollah khomeini as a peaceful protester to start with. i remember here in the eastern province that it was also viewed as a peaceful protester, but i think the saudi's meet him as justified as dangerous as the ayatollah khomeini was in iran. dissent paranoid about right now. frankly just because you're paranoid does not mean someone is not out to get you. i think they view this as an asks essential to -- an existential threat. i think these were bona fide terrorists and a number of them work accused of terrorist assaulting in sound t
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2004. i remember very well because my driver was killed that they. there are a number of these men like wishing on death row for some time. the king has been hesitant to pull the trigger and now king solomont is trying to show that he is the strong leader despite internal dissent within the royal family and his population. as part of what explained what has happened here. matt: matt miller here. i have on the bloomberg terminal a lot of information. opec brings up a chart that oil ofs 31% out of the opec is produced by saudi arabia. nobody even really puts up double digits here. iran is only putting up 8% of opec's oil. if the price of oil actually starts to come up again, does this relieve some of the tensions? i think most of the attention or a lot of the tension between
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iran and saudi arabia has not been on sunni and shiite lines lately but because of the oil prices and the fact that saudi's continue to pump when iranians need money. i think they are both very important, but if the prices edges up somewhat, in relief some of the pressure on the saudi budget. they can use some of the funds to subsidize the population. that is not a long-term sustainable strategy in any event. got to dig inhave though. when we think about opec and the broader implications, saudi arabia -- there economy is 80% dependent on oil. how can you lead your country? have you begin to have a strong hand when you are in this kind of position? robert: they started it some years ago by emphasizing education in areas other than strictly the oil economy.
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they now have 80,000 students studying in the united states and another 100,000 studying elsewhere. realizing that they have to come into the 21st century with a more diversified economy. stephanie: those 80,000 students studying the united states do not want to come home. there are not jobs in saudi arabia for them to come home to. robert: they are required to come home for at least two years. most of them do because they have strong family ties. a lot of them ultimately will migrate back. it is a risk that though saudi's are taking. they are desperate to find a way to create a population that has job skills beyond simply an oil economy. there is a lot of foreign direct investment going on since the savviest joined the wto and i think we will see progress in that regard. it may be too little too late. johnathan: robert jordan, thank you very much for joining us. matt miller, your point about the tension between iran and saudi arabia in the oil market -- if there was any faint hope
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that those two countries could come to an agreement to cut saudi production and allow iran to let their own, forget about it. that is the bottom line this morning. matt: absolutely. let's take a look at the well markets. just quickly before we go to break here, you can see that we are down the hundred 10 points on the dow jones -- 310 points on the dow jones. oil has been gaming, but not as much as you would expect with this geopolitical tension. take a look quickly at the big oil stocks. put up big moves, this is what drives the big market. johnathan: thank you very much. join us on the other side of the break. more in just a couple minutes. ♪
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meltdown in the middle east. saudi arabia cuts off diplomatic ties with iran after the saudi cleric is attack. where stocks ever. markets around the world are
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following their lead. another big deal for big pharma. shire is in advanced talks to buy back for $32 billion. ♪ david: welcome to the second hour of "bloomberg ." i'm david westin. stephanie: i am stephanie ruhle. the first day of trading and global markets info gets and nosaudi arabia, better company to have with us than jonathan ferro. johnathan: does she usually do this? stephanie: it's a new year and a new leaf. johnathan: i give it until monday. stephanie: monday is not a problem. it is friday when things get a little edgy over here.
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we are going to dig into those markets and more. how about first would news? vonnie: an antigovernment group in oregon is bound to continue its occupation of a federal wildlife refuge. the group says it will stay in the building for as long as it takes. they are supporting a rancher and has some who were sentenced to prison for setting fires on federal lands. for now, please are staying away from the refuge. can't get guna control messages through congress so he may take executive action. he meets with loretta lynch to discuss resurgence he can impose. on wednesday, he will hold a town meeting on guns. buildings in san bernardino where a terror attack happen will reopen today. it is at the inland regional center. while the two main buildings will be open, the actual conference center where the attacks happened will remain closed indefinitely. matt: let's take a look at futures.
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they are down 35 points on s&p. dow jones futures down 300 points right now. 4.5% earlier.f the biggest decline is over in european you cannot see the severity of the drama going on over there. you can see from this big red number here. it all started in china come which led us to take a look at the chinese adrs that trade here in the u.s. take a look at some of those. alibaba down 4.5%. down 5.5%. those chinese stocks not only down over there in the mainland market, but also the ones here in the u.s. taking a big hit today. johnathan: thank you very much. let's talk more about china specifically.
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elected whatfrom are you paying attention to? are you looking at the hard data? don: i'm looking at both. i thought the actual data was not as bad as it has been per trade in various places in the media. -- one wasufacturing down and one was up. maccallum gaming revenues were up for december. macau visitors for november were up. house price data for china in december was up. the economic statistics in china have turned from all bad last summer to mixed now. equities -- this was a self first ask questions later today. i do not think this is the path for 2016 though. i think 2016, china equities are up and not flat and not down. stephanie: when you say sell
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first, ask questions later, would you say that some of today's down trade has to do with the technical testing the circuit breakers? donald: perhaps it did. they just put in new circuit breakers for the csi 300. it is down 5%. that is what happened today. but this is a case in which the economic numbers have not been any good. it has been a disappointment in 2015 in the economy. equities went straight down. beijing broke the markets. a little recovery after that. it has been an up-and-down year. i think this year will be more up then down. stephanie: if we dig in one step further, how about the fact that per day to the -- productivity is not up? donald: productivity in china is
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rising. it is not rising as fast as it used to rise. that is just a natural consequence of china catching up to other country's productivity levels. their productivity rain gate is slowing -- gain rate is slowing. the only thing i want to know when you get your crystal ball out is what happens with the yuan. -- that ismarkets the only thing that matters coming out of china. it's not what the shanghai composite does. what happens to the currency this year? donald: that's a good point. august 11, the yuan was 611 to the ust. $6.50.d the year i think at the end of 2016, it
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will be about $6.80. that is more decline. no more devaluations. clear ongoing depreciation over the year as china manages the currency to a basket of ,urrencies, not to the usd which has been the practice from 2005 up to august of 2015. david: finally, talk to us about that. heard that debt is rising fast in china, which is not sound like a good long-term trend. donald: it is not a good long-term trend. that is the case. clearly at the end of 2015, debt grew again faster than gdp. it is unsustainable. we know that. that does not mean it is going to break in 2016. i do not think it will. to liftchina's effort the economy is to continue to push even harder on fiscal. they will do more and i think
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leverage will rise in .16. 2016 in an effort to try to revive a sluggish economy in china. from: what kind of reforms the enterprises and soa's? the enterprise reform that we have seen is quite frankly disappointed. we have seen some mergers. that merge into one giant, inefficient enterprise. xi's stance is improved state management. calling those global competitive firms to teach the chinese firms. it is to improve state management. this is a disappointment to all investors around the world/ . stephanie: easier said than done. david: thank you, donald for
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joining us today. we are to turn to the middle east again. oil prices are up just slightly right now as tensions in the middle east now. bahrain has followed in saudi arabia's footsteps and severing ties with iran and a monumental meltdown in middle east powers. is here on the oil and goal. oil prices are up slightly. does it tell us much at this point, andrew? andrew: i do not think this is any surprise. historically when you have got any sort of geopolitical news out of the middle east, we have gotten a similar reaction with oil prices up 3% or 5%. we have seen oil prices surging. a surge a 15%er or 20% move. the move higher is not surprising whatsoever. stephanie: you would consider a surge more with 15%. take us back 10 years ago.
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if we saw this kind of tension 10 years ago, we would get a spike. what does this say about the massive increase in u.s. oil production that things are so muted today? andrew: i just think the focus is now more on fundamentals. to 2014, there was a geopolitical premium built into that $85 to $100 oil price range. now, you do not have that much of a geopolitical premium at all. i think that is mainly because we are so oversupplied. as we look forward, there is not much going to change over the next 6-12 month in 2016. it is more of a 2017 story right now unless you get some sort of geopolitical surprise. you cannot use that as part of your investment thesis if you are an investor. johnathan: we have the former ambassador on in the last hour the program and said that things could escalate further. on the navigate
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bloomberg terminal. what does an escalation look like? ties.t to the medic that has happened before in the late 1980's. what is the next step? kambiz: the president wants to attract foreign investors with the nuclear deal and the lifting of sanctions to come invest in iran. wants is tong he escalate. i think the escalation will not go beyond. i do not think saudi arabia will get anything harder than that. i do not think we will see fighter planes bombing each other. i think we will see a few more diplomatic exchanges. and then everyone will start to calm things down. -- because saudi arabia and iran aren't too many proxy wars that need to be resolved. john kerry is trying to get both cou. to resolve these
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david: to what extent does the u.s. reduce that with respect to iran? if iran is about to come online with 500,000 barrels, it is really going to suppress prices. kambiz: that is why we are not seeing much excitement in the oil markets. the pop asa needs much oil as possible and iran will add 500,000 2 million barrels. -- two one million barrels. i think the u.s. has a stake in for policy on this nuclear deal being implanted and being a success. stephanie: we're going to take a quick break. thank you. judd making deals. -- drug making deals. shire is in talks to acquire baxalta for a whopping $32
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billion. drugmaker m&a continues in 2016. we will continue in just a few. stick around. ♪
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vonnie: welcome back to "bloomberg ." here's the latest bloomberg business flash. electric carmaker tesla has tipped the low-end of its targets to ship 50,000 vehicles a year. the company sold 17,000 of them in the fourth quarter. tesla makes the model s suv. in london, investment bankers an expected get bullish on earlier fraction of what private equity employees will receive. that is according to a survey.
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london investment bankers expect to get about 36,000. private equity employees are counting on more than four times as much. that is your business flash. johnathan: thank you very much, vonnie quinn. in today's, what is the big deal , we have jeff mccracken from joining us now. jeff, this is not the first time that mccracken is making the deal happen, why this time around? jeff: they're about 2 billion reasons if you will. baxalta was around $32 billion. they won in more cash in the deal and they're going to get cash in this deal once tickets announced -- a gets announced for you will value them at about $32 billion. -- once a gets announced. about $32alue them at billion. it is not an all stock deal. be whollyrs would
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dependent on shire rocketing and getting stronger over the years. stephanie: how do shire investors feel that this? drew: it has been a really interesting story. they have done a number of smaller deals. -- they way back when had a deal with abbvie. it was going to be around $50 billion. that fell apart. like maybe a few hundred billion dollars worth of farm and deals ago. that fell apart and they happen wondering what this is company look like? you're looking at a deal where it is a transformative deal that they are looking for. shire is big on treatments for rare diseases and drugs that have small patient populations. you can command really high prices and baxalta offers that. it is something that shire has been leading in that area, but it allows them to make a leap forward. stephanie: is that a dicey business to be in? they have always look for drug specifically for rare diseases. that gives you a huge advantage.
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with those kinds of drugs coming can ask a major premium. at a time when we are seeing so much focus and pressure on that drug pricing, do you want to be shire? drew: i think you do. in the drug industry, there is a really big difference when you talk about high prices. there are high prices for drugs that have a lot of alternatives where it feels like the drugmaker is taking the price because they can. there is high prices for the drugs were you see a company that says, you know what? there are no treatments for this disease. these people are dying or being sick with our help you we are coming in and doing something meaningful and innovating and we are going to get paid for insurance companies are willing to pay the high prices when they see those types of difference making drugs for diseases for which there is a very little or if no options. talkthan: every time we about m&a, this is the only sector that seems to matter. jeff: i feel like we are in the final third innings. the biggest deals that could get done have gotten done.
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we are waiting for pfizer to do their deal and they had been doing that with our game. -- allergen. start tohis is good to slow down. we have had seven straight quarters of a trillion dollars plus in m&a. you get to a point where all the big companies have done their big deals. they need to get through the regulators and handle that deal and get it worked out and cut the heads and get efficient after they do the big acquisition. david: this is not a tax aversion deal. some of the financing has to come from the fact that baxalta's tax rate will go down. jeff: it's around 22%. if shire does the deal, it will be more like 60% or 70% combined. there's always a big tax implication here. stephanie: we have to leave it there unfortunately. i wanted to talk about valiant for a moment. thank you jeff mccracken andrew armstrong. bills beat the new
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york jets 22-17. it was an upset game yesterday, bumping the jets out of the wild-card playoff spots. it was a big game for bills head coach rex ryan, who was fired from the jets last year. what is rex ryan saying? how do you like me now? sorry gary v, super fan of the new york jets could when we come back, president shall front runner hillary clinton went for a tax system that ensures loftiest americans pay higher rates than the middle class. are you watching? that is next. pay attention. this is "bloomberg ." ♪
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matt: time now for futures in focus. in prices are climbing volatile traits as saudi arabia cuts ties with iran after its
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embassy in tehran was attacked to protest the execution in saudi arabia of a prominent shiite cleric. prices cap a week to your loss. losss the biggest two-year what happens now? join me now is alan notman. on starting take 2016 with this massive loss in geopoliticaluge issue in the middle east, and big drops in futures? alan: you have got to watch these markets sort it out. it is interesting to watch how these changes. you see in the geopolitical action. was interesting for me is how the markets are not reacting to any of this news. it is up a little bit. we did make a bottom two weeks ago. we will see if it can hold. extreme -- is the
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extreme left in crude oil is down about a dollar could is interesting that you are not getting any bounces at all over the last week and month. that reflects the weight of this market. but somewhere there could be a bounce. look at natural gas. natural gas was at 180 and now we are up at 230. we follow natural gas closely, but with crude, especially with brent, when you see this kind of geopolitical tension, you have got a couple of proxy wars going on in syria and yemen. these two countries are incredibly important to the market. why do we not see a bigger jump in print crude? alan: that is the mystery. that is the overhang here. you would've seen a four dollar a five dollar movement in crude oil years ago. it is just not reacting. that the last time we had a bounce was when you had the plane shot down over syria.
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to $43 50de bounce up cents, but it has been on a decline ever since. that is what i'm looking for technically. the market made new lows, but not new highs of volatility we are not seeing any follow-through when we do a gets anyut we are not seeing follow-through when we do get a bounce. david: now we are turning to power. hinted at aton has proposal to raise the tax rates paid by the wealthiest americans. plan would go beyond what billionaire warren buffett proposed. he proposed that everybody who makes $1 million or more has to pay at least a 30% tax rate can hillary says that is a good idea, but it does not go far enough. but jonathan, over here in this presidential election, this income inequality factor is really large. has a look from the other side of the atlantic? johnathan: i'm surprised because
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we used to study american history and we talked about the idea that you come into the workforce and you have aspirations. those in the lower wage wanted to be in the higher wage. you do not want to tax the higher wage bracket too much because that is what you see in the future. that does not exist anymore because politicians can tap into the discontent over wages. what is really important and interesting is taxing the flow and income. the real wealth inequality over the last six years has not come from that. it does not come from stephanie ruhle earning more money than anyone else. it has come from people's assets that were wealthy. the can talk about taxing flow. it is really the stock of wealth where you see the worst in inequality. point 001%it is that where inequality has hit the hardest. when you talk about numbers like people who make $1 million, if
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you see a big tax increase, these are people who could be running small businesses were actually crating jobs. if they get hit, there will be a very big impact. david: who is in that very small band at the top running for president? donald trump. i hillary doing this, it may well focus all on what the marginal tax rate is for donald trump. johnathan: i find it very interesting than the likes of warren buffett say i should pay more tax. i think the treasury would accept that. stephanie: mr. buffett, you are welcome to send a check. mr. bill clinton joins the campaign trail today in new hampshire. when we come back, we will dig a bit more into warren buffett. stick around. ♪
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jonathan: good morning, and welcome back to bloomberg . ftse futures, the ftse getting absolutely slammed this morning.
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-20 points. -32 points, and ugly session. what a way to start 2016. stephanie: if you think about the weeks we are coming off of, there was little to no trading activity. people like to go big and goal on the market. there is continued uncertainty today. starting a year with uncertainty is not good. stephanie: they saw the chinese stock market -- david: they saw the chinese stock market down 7% and saw a real conflict between iran and saudi arabia. stephanie: it is not like the news out of china is that big or that different. this is just a market with so little conviction. breaking news, and matt miller is jumping up and down. matt: gm has just come out with a statement. it is investing $500 million in lyft, the very small arrival to
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cooper. --uber. uber has a $60 million market cap. this gives lyft a five and a half million market cap. i did spend a day driving for lyft, i do not know if you remember, in an aston martin dede nine. stephanie: i do remember. outspokent's more investors as carl icahn. he said there has to be compression, this simply does not make sense. uber would make the argument, it is all about growth. stephanie: the larger's -- david: the larger story is you interviewed the ceo afford. they are going into this business one way or another. matt: gm wants to get involved
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in the most interesting thing, old people like us only use one out. stephanie: that is not true. i want to bring in jamie butters from detroit. when people look at their phone, do they actually care if it is uber, or do they just want a ride quick and cheap? jamie: the other factor that comes in is safety, and i think there is some comfort for some people in having one of the more established brand names. there are some people who may be felt more comfortable with taxis because they were better regulated. i think that is one factor that comes into play, but certainly people are looking for a ride that is safe, affordable, and on time. david: i also wonder, to what extent is this defensive? , peoplesaid for a while
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will buy fewer cars because they will be able to share them with other people. if you cannot beat them, join them. that is exactly what it is, very much a defensive maneuver. the established industry that has been doing the same thing for the last hundred years, making cars and selling them based on their brand and the brand characteristics and what the consumer expects from an ownership model, that may change. we do not know how much or when, but it it is going to change, it is going to change the way people get around and pay for getting around. bmw is also experimenting, daimler as well. they want to be a part of it, wherever the money is going to be a made. -- guess who is making money, lyft investors. this is a big deal. just a couple of weeks ago,
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david and i sat down with uber's senior vp of business and he was talking about their exit strategy. >> uber is five and a half years old, a very young company, and we have a long way to go. it is like asking a ninth grader what they are going to wear for the prompt. you have got some time. when we are ready to go, we will go. to go just to go is somewhat of a negative sign, in that if the management team is not selling any stock, we are motivated to drive the stock. stephanie: this is about long-term opportunities. valued at over $60 billion and they are in no rush to go public and monetize. what does this mean and the long about with this car company could look like? that is the real story, and i want to cross over
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to matt miller and talk about it. say,e look to tesla and stop making cars, just create the technology and sell it. is that were gm is heading? matt: that is definitely not were gm is heading, and not where ford is heading, but they have to try something to revive this picture. this is a look at the five-year stock price with we and -- reinvested dividends. the white loan is gm. i could just as easily reported with -- replace it with ford because they have gone nowhere. the interesting thing is, i am about to report tomorrow on the greatest year, the best year ever for u.s. auto sales. sold more autos in 2015 than any other year in history, and yet, this is what the stock price looks like. it is doing absolutely nothing, so they have got to figure out some way to repay investors. to hitch theiris
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wagon to the star of technology and growth. stephanie: there are some free options. $500 million is no big deal if you are gm, and you get to say guess what, and i threatened, i'm in the game. $500 million is not an inconsequential amount of money. i only say, $1 billion is a real sized that in the industry. that is what it takes to develop a platform or a factory. venture-capital arm, this does not appear to be done through them but it normally invests tens of millions of dollars. this is an unusually large investment of gm in another company. quarter, but it is a significant outside investment. matt: this is a company that is
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spinning off a ton of money. they're free cash flow is billions and billions. they are sitting on $25 billion in just cash and equivalents. david: to your point about the stock -- jamie: to your point about the stock, these are record sales. it has offered been a ugly market, gm and ford cropping up the market, and consumers to get rid of their old cars and buy new ones. now everybody is making money, it is a very profitable market with more room to grow. and yet, they cannot get any excitement from investors. there's the sign the market will turn down before it gets any better. matt: can i just make one point of difference between then and now, everyone needs a new car. the average age of a car on u.s. highways is ill over 11 years old. david: did it come as a surprise
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to you, is this part of a larger strategic direction of the company? is definitely an important strategic move, and not one we have seen. the new leadership has made some strategic moves that are not traditional for gm. they are pulling out of russia, pulled chevy out of europe. they are cutting back with a do not see long-term sustainable profits, and making bigger bets where they do see a long-term future. stephanie: jamie, you are right. anyone who says $500 billion is no biggie deserves a slap on the wrist. jamie butters joining us from detroit. let's get you to the morning meeting. i will take you right back to matt. matt: i very happy, because there is a lot going on, and very exciting stuff and oil, climbing a little bit on the news that saudi is breaking ties with iran. what does this mean for the
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real, oil? blotch, thank you so much for joining us. why isn't oil moving more. situation that is difficult between saudi arabia and iraq -- the run. francisco: remember you can make both a bullish and bearish reading in the ongoing tensions. on the one hand, you might say there is the military conflict and we might lose production. on the flipside, iranian barrels are about to hit the market and the saudi's majors keep on pumping. we have seen a bit of a price war between saudi and iran with regard to the oil market, so i think that is where the market is kind of mixed and probably
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not jumping more on the news. there is the overhang of iranian barrels and the potential that the saudis might keep pumping to offset incremental iranian revenues over the next few months. matt: if this does not move the price of oil that much, what does? is there any catalyst you see that could jack up the price of oil? remember, the reason why the opec meeting was so bearish was because the saudis and iranians could not sit around the table. there was no sense of agreement. this tension will make it even worse, but i do think that if this tension is translating to physical production loss, that will be a whole different story and the market will change its tune very quickly. we will see a record increase in short covering, and the market will rebound. it is still early days.
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we just had the events in the last couple of days, so we will see how they involve, but for the time being, there is no sense the escalation will go any further. matt: what about the biggest commodities consumer in the world? china's oil demand may rise 8%, however all of the other economic stats out of china look depressing. is there any indication demand could affect oil price? francisco: demand has been great in 2015. that trend is going to slow down this year in 2016. chinese demand is going to be pretty strong has remember, if there is one commodity china does not have, it is oil. betweeno of consumption -- and oil is very different
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when you compare the u.s.. there is little room for convergence. --the demand and pick up here in u.s. we are starting to see production rolling over. combination of lower u.s. production, negative impact of the cap x cuts over the last 18 increasing will rebound the market into the summer, in our opinion. $50 oil by july. matt: quick question about the real. obviously it is pegged to the dollar. is that going to change? will they have to devalue? francisco: they do not have to devalue right here right now, but i think sally is going to have to choose between either capping production or rebounding the price to a more sustainable oil price.
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or they will ultimately have to devalue. the choice is ultimately saudi's , but we are of the opinion that they either make the price higher or they devalue. if they do not, they will drain down their resources and be in a much more difficult financial position. it is a fine line. matt: francisco, thank you for joining us. john? jonathan: up next on this we are talking puerto rico as the governor says it will not be able to pay back millions in bonds. equity is here in the u.s.. good morning. ♪
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vonnie: welcome back to "bloomberg go." another pharmaceutical deal announced this week, shire is expected to acquire baxalta. baxalta turned down a lower offer from china -- shire last summer. faultyal over gm's admissions will start next week. five more trials are expected to happen with law suits involving thousands of people. brazil is headed for its worst recession since 1901 according to a survey of economists, who predict the economy will shrink over 3% this year. they are trying to control the fastest inflation in 12 years without slowing down the economy more. stephanie: there is continued
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trouble in puerto rico. the governor says the island will not pay the $37 million owed to bondholders today, and withholding from funds. michelle, we have already seen some defaults, but they are small. government hasn not said if they will make the big government -- big payment coming up. what did they know -- what do we know? michelle: they will be paying a part of what is due today, but one thing that made some investors happy is that puerto rico said they would pay all of their direct debt today. what is known as general obligation debt, they will pay all of that. the things that intrigues me is i believe they failed to make some payments
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already, and basically no one sued. is that because they do not think they can collect? is anotherhere agency called the public financing agency, and they have been defaulting every month since august. those investors have said, we are at the very bottom of the totem pole. the chances of us having any strong legal recourse are low. they are sitting tight and waiting to see what happens with these negotiations between ,uerto rico and its creditors to see where they are going to fall. stephanie: hold on a second, this is political. this is not financial. if they get to pursue chapter nine, this is in congress' hands , they get $72 billion worth of debt. they have got to do with the creditors. the water authority has publicly said they are solvent, so this leaves you with highway, and
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there is maybe $4 billion worth their. you have 60 plus billion dollars of obligation debt. if you file chapter nine, it cannot affect obligations debt. this is political dancing. jonathan: that is the key point. it is much more serious, and what is on the table over there, a fiscal crisis, very political turns into a financial crisis. -- far morel efficient than what is happening in the u.s.. david: with these creditors are betting on is congress or the supreme court, because there is a statute in puerto rico that has been challenged that if it went through, they could do their own bankruptcy. are anxiousreditors to see what puerto rico can do, even if they get chapter nine. the governor has said, i cannot
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file. even if they can, where is the money coming from? puerto rico told us last week, we are having some defaults. these defaults are small. show us where the money is. michelle: they are grabbing it from these other agencies, taking revenue, tax revenue and using it to pay their general obligation debt instead, because it has the strongest legal protection. they need to pay that first and foremost. the general obligation debt is almost $13 billion. stephanie: rum tax. i did have a big christmas vacation, but i cannot help you there. david: michelle, thank you for joining us. how online sales are making it even worse for returns, next in-store wars on "bloomberg
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." ♪
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david: welcome back, you are watching "bloomberg ." it is our first edition of store wars, where we bring you the latest from the retail sector. as internet sales surge, more shoppers return merchandise with the click of a mouse. what is going on with these retailers and never returns? shannon: the more you buy online, the more likely you are to return it. 30% of shoes and clothing are returned. because think about it, you cannot try it on. fit, the sizing is off, and other merchandise, electronics. it is flowing back into stores and that costs big money. a lot of on line retailers offer
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free shipping. stephanie: a lot of people window shop because they get free shipping. julie hyman just sent this to us, americans return to hundred $60 billion worth of merchandise last year, and it is up almost .6% it goes to liquidators, and's up and garbage trucks, goes nowhere. well you hear retailers, nordstrom, walmart, talking about online, the good thing to keep in the back of your mind is, or returns. to one retailer who says they are lucky to get $.20 on the dollar for something that is returned. turn --hat is the return rate for the brick-and-mortar? shannon: it is about 15%. some retailers make this their business model.
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these brick-and-mortar retailers that are trying to switch this online world, they do not necessarily have that built in. they do not have the margins and the system. stephanie: jon ferro orders 10 week.irs of glasses every jonathan: i still like to go to the store, it still matters to me. i do not want to shop online for a suit, that is sinful. shannon: retail fraud is up. they expect $2.2 billion in fraudulent holiday returns. someone who buys something, where's it, and returns it, or something who steals something and shop -- and returns it. stephanie: you have got some guts if you steal something and you walk in and return it. shannon: that is a double hit to retailers. with the receipts, a lot of atailers will send you
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receipt. it is easier to forge. stephanie: oh my goodness. these are not called store wars for nothing. bloomberg's own, shannon pettypiece. jon ferro, thank you so much. we really like having you here. jonathan: i will be back tomorrow. come, axiomtill to capital founder liam dawson is joining us for the hour, along with our friends in the great white north, erik schatzker. ♪
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david: we are now 30 minutes and 25 seconds away from the opening now in new york, i'm david westin. stephanie: i am stephanie ruhle.
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guess who else is here, erik schatzker. erik: my opportunity to say happy new year. guess who is with us? no better person to have with us on a day when markets are shaky, liam dalton, founder of axiom capital management. they have $3 billion in assets under management and lay him is one of the few hedge fund managers who had a good year last year. i guess that entitles you to a congratulations. liam: it is never good enough. erik: that is what your client say, no doubt. vonnie quinn is going to bring everybody the first word. --nie: saudi arabia's eyes it's execution of a shiite cleric sparked the attack iran.n ironic --
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to work todayrns and repealing obama care tops its agenda. unlike dozens of previous attempts, this could reach the president's desk, and it faces a certain veto. the presidential campaign will start airing ads tomorrow in iowa and new hampshire, focusing on border security and immigration. it is hillary clinton never mentioning republican rivals. , i'm vonnies a day quinn. want to show people some things that are actually gaining before we get into the massive drop we are seeing across markets. these asset passes are up -- classes are up. you see crude at 1.6% as tension ramps up between the saudis and
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iranians. brent is up as well, back above nymex. we did see an inversion the week before christmas. gold is up. these commodities have had a bad time. oil over the last two years is down 62%, gold is down three years in a row. they are bouncing back this morning. is going onat what with chinese stocks, because china had the worst start ever to a year. you probably saw this the first thing we woke up, a 7% drop on the index. that triggered a circuit breaker and shut down trading for the rest of the day after they had already had a 15 minute break. csi 500,he hang seng, shenzhen, they are all down big. throughe, that traveled said the dax was down four and a half percent at one point.
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it still is down 4.1%. we are seeing big drops across european indexes, but none st as in germany. as far as u.s. futures, we are near the session lows. the s&p many futures are down 39 percent.lmost two full the same is true of the dow jones. markets onn these concerns that china, just sparked a drop in equities around the world. erik: it is time for the stories that matter most to markets now, and no better place to begin than with what not just told us, this selloff in china. when you see a 7% selloff in the shanghai, and a circuit breaker is triggered, does that foreshadow anything for 2016, or is this one
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isolated day? liam: i think it reminds us the fault lines are not just a mistake. things are happening in china which have represented a lot of global growth on the margin over the past few years, are going to affect things predominately in some of the european countries and in the u.s. this whole issue that surrounds the market, we do not have a very one directional picture like we had from 2009 through 2014. the fed is inflicting, higher rates here, europe is softening. this is all a very disjointed picture and when something goes wrong, it is going to create a sharp reaction similar to what we had last summer. stephanie: what picture should matter most to janet yellen? if i look at the u.s. and we are growing, can you make the decision to raise rates and then two weeks later, china falls out of bed, then what happens? would makenk they
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the argument that they are operating by looking at the fundamental conditions primarily in the united states. they are like everyone else, ,hey cannot see through the fog ca a real sharp down move in china coming. they are trying to do their best and normalize policy here. of problem is, we are one the only economies that looks somewhat normal at the moment. global gdp reflects that. david: what should investors be thinking? to august, theck chinese selling that sparked a global market selloff, tons of volatility, maybe pushed off the september rate hike. stocks ended the year right with a started at the end of july. if you close your eyes and went to sleep for six months, nothing has changed. liam: it is not that stocks ended up where they began.
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the index ended up where it began the year, but the vast proportion of stocks went down on the year. waitedlook at a non-cap aces, we are in a bear trend and have been for the better part of the whole year. there was a very large cap weighted stocks that kept the market average up, but there was deterioration in a lot of the underlying issues to the average stock was down somewhere in excess of 16% on the year. it has been a stealth bear market in individual stocks, while the index itself, nothing really happened. there's a lot happening below the surface. david: the number two story, saudi arabia, bahrain has joined saudi arabia in severing its ties with iran, the biggest breakdown in relations in the middle east powers in almost three decades. they are adding to anxiety in the market.
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brent futures are seeing a lift as a result of the tensions. andrew cost growth is joining us now in princeton. we talked about this a bit. what longer-term deep-sea and terms of consequences for oil prices? andrew: i think it ultimately pushes any hopes of any recovery in 2016 into 2017 at the very earliest. unless we get some sort of geopolitical shock that knocks off the iranian barrels between five hundred and a million. as iran ends those barrels in 2016, saudi arabia may take the opportunity to step in as well and try to increase their market share. card for 2017,d or even 2016 as the oil market. david: you could end up with a very negative feedback here, because if they stay down or even go lower, that puts more
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pressure on saudi arabia. andrew: exactly. theseunately now with geopolitical tensions, if oil prices to rise above 40 and rise to 50, it delays the recovery process or the cleansing process that the market really needs. you need these lower prices to so a more stable recovery foundation. 2016 is essentially going to be a wash, and less something exogenous pops up. david: andrew, what is the fear, is there a real fear that this long-running and very deep seated theological divide between saudi arabia and iran could somehow turned into a conflict whereby either country would be looking to destroy the other's oil-producing facilities ? that is really what would drive the oil price much higher than it is now. andrew: correct, and certainly anything can happen. i am not a geopolitical analyst
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so my ability to and he cap the situation is probably not as good as someone else. the life wide of both of their es rely on oil. you need something bigger to happen to get a long-term lasting shock to either one of their economies. anything can happen, and looking around the world, you would look to the u.s. as a more short cycled market. those a be the first ones that ultimately benefit from any rising oil price, if and when it does happen, at the expense of the middle east. stephanie: there is one thing we are certain of, you have a lot of work to do this month. andrew cost curve joining us from princeton. shire is said to be in advanced talks to buy basalt that in a $32 billion tax and stop deal.
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sources say the deal could be announced as soon as this week and what value baxalta at 46.50 $248 a share, an advance on shire's offer last summer which did not include cash. shares are up this morning on the news. the m&a party and the drug space, never-ending or are we finally stored of -- sort of picking up the scraps? liam: it has been such a busy area. there has been a lot of motivations. growth motivations, tax motivations. in this case it is not the primary focus, but pharmaceutical companies are very challenged right now. they have to find avenues of growth and they are looking for ways to incorporate further growth potential through these large m&a details -- deals that allow them to take cost down and get a big bigger -- bigger revenue base.
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be a veryg to challenging thing, and i think these drug companies are responding in kind saying, we need to merge and make these deals. david: doesn't there necessarily, power over price, meaning infect -- effectively increased prices for the consumer? liam: there has been a lot of chatter about that, particularly in washington. i think you will find that companies that have prices that are being set in the market, they are not going to have, given what we are hearing, they are not going to have the same level of pricing power that they had at least retrospectively. i think they realize that and they know they're being watched carefully. private pay companies that are selling things, those companies are in very good shape. there's a lot of differentiation going on, and you have to as an investor that these drug companies individually. do you have any positions
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predicated on the thesis that there will be more m&a and pharma? liam: our biggest holding is and allergan so that is a big deal. across the board, we are not too involved in health care right now because we have concerns about pricing, specifically what you mentioned. if pricing or the perception of pricing is going to become challenged as we head toward the political soundbites that are continuing to hit us, i just do not think right now is the best time to be aggressive about paying higher values for drug companies. payrgan has private products predominantly, so they own $40 billion in cash. but ass its own drivers, a group, i'm a little bit shy on pharmaceuticals. story,our number four general motors is investing $500 million in the ride hailing app lyft as part of a $1 billion
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fund-raising round that values the company at $5.5 billion. gm and lyft say they will work on developing self driving cars and help individuals rent cars throughout u.s. cities. jamie butters, is this a step gm buying lyft outright? great questiona and i think something we have to watch over time. his lyft going to be a brand of gm, or is gm going to be a unit of lyft? as we get into self driving cars, maybe more electric cars and fewer gas burning cars, it is definitely an interesting and a big bet. it is a big move to bring these companies really closely together, and they are talking about some pretty long-term planning. david: you do not know about the
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specifics anymore than we do, but what do you make of it more generally in terms of auto manufacturers in this ridesharing economy? -- autouto sailors sales have had a good three years. they are challenged as far as there and markets go, and what they are looking for, i think they would like to secure and markets -- end markets that give them at outlook -- for their market. david: is there potentially a sign for desperation for lyft here? big step inrs is a terms of corporate partnership, but they are giving away 18% of the company. $2 billion andd a had to give away 7% of the company. they have a profit margin of something like -250%.
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desperation is not necessarily a bad idea when you are hemorrhaging cash at that level, so this gives them a lot of needed cash as well is an important partner. it is definitely interesting times on both sides of the equation. erik: jamie, we thank you very much. jamie butters with us here from new york. next up, we will be looking at what is up and down the most, free market trading. futures are selling off after china down 7% overnight. ♪
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vonnie: welcome back to "bloomberg ." iran says its
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planned to increase oil production will not hurt the market and they could export more than one million barrels of oil and day. because of the oil glut, prices decreased by 35%. trading for the first time in the remaining 80% stake in the sports car maker. for debuted on the new york stock exchange in october. when they come back, how closely is the fed watching this cycle? ♪
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david: welcome back, you are weching "bloomberg ." have been watching the markets intently because they are all over the place. morning,woke up this first thing i saw china was suspended because of a 5% drop and trading was closed because
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of a 7% drop. europe is down big time and we are seeing big drops in the u.s. as well. the s&p futures are down 1.8%, dow jones noun -- down more than 327 point. 2016, andto kickoff 2015 was not that great either. check out some of the individual movers, tesla down in the premarket 4%. it did hit its goal for shipping , or lastits this year year i should say, but that was lower than it had previously projected. it wanted to do 55,000, instead between 50000 and 52,000. they have only delivered about 2000 model x's. tesla down in the premarket. take a look at netflix, the stock has been cut to neutral.
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there's -- their 12 month price target is $215 and they say that content costs will skyrocket. let's take a look at chipotle, it has been cut as well because of the e. coli scandal, but they do not think, the analysts at oppenheimer do not think it has played out yet as far as cutting future earnings. stern and leach also has a new picture on chipotle, $453 target. david: thank you very much, matt. the u.s. economy is a mixed picture. energy is weak that housing is looking brighter. with the fed's tightening cycle, the focus is on the data. we are joined by two experts, liam dalton and what did you miss anchor joe weisenthal.
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joe: happy new year. david: what are we looking forward to? has i think once the fed commenced the tightening, there is more pressure to deliver. the fed says it is going to be data-dependent, but you have to figure there is more of a bias toward high gains then there was a couple years ago. if the data disappoints, and if the manufacturing energy commodity exports part of the market, the economy starts to infect the rest of the market, then i think there is going to be a growing concern that the fed made a mistake. david: do the markets know something then -- that the fed does not? joe: there is a difference, but i'm never to, i would not put too much confidence in either one. the markets have been wildly wrong about all kinds of things. the markets never thought the
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fed was going to wait until the end of 2015 to hike, so there is clearly a difference. how the difference resolves is what we will all be watching. stephanie: until today, one could make the argument that janet yellen raised rates and the beat when on, nothing happened. as janet responsible for she happens in china? joe: is not, -- liam: she is not, but housing and autos have had a good year. this whole thing we have done with keeping rates as low as we have for as long as we have, that does not create a permanent list to the -- lift to these intersected groups. at some point the markets will experience these kinds of for the with a reset possibility that the demand has
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been pulled forward. joe reminds us, the fed says its decisions will be data-dependent. the question is, which data within the labor market? .nflation is pretty easy to see they are looking at signs that inflation expectations are rising. what about this third mandate the fed has? do you believe in the yellen put? liam: i think it is a dangerous concept. anything that projects that kind ,f sinking of the market obviously i am sure they would be unhappy with a concept surrounding them providing sort of hazard insurance. but i think the have tried their best to send a message clear to the market. joe: i think in terms of the data you go back to the basics, how is the job market doing, and is there upward inflation?
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we got pretty good wage data the last couple reports of last year. i think the fed will be inclined to raise rates. you cannot totally discount financial market volatility, but yellen does not seem like the type who is particularly inclined to babysit the financial market. i do not think she sees high stocks as part of her. stephanie: i agree with that. at the same time, they have invested trillions of dollars in q3 and have nothing to show for it. gdp, there isal none. i have a feeling they are going to have real questions. david: we will continue after the break. we continue on go in just a couple minutes. the only way to get better is to challenge yourself,
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and that's what we're doing at xfinity. we are challenging ourselves to improve every aspect of your experience. and this includes our commitment to being on time. every time. that's why if we're ever late for an appointment,
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we'll credit your account $20. it's our promise to you. we're doing everything we can to give you the best experience possible. because we should fit into your life. not the other way around. we are moments away from the opening bell. futures suggest we are going to see a pretty significant drop in stock prices.
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sold off 7% con overnight, makes ringing the opening bell a pretty tough assignment. time for some investment strategy. liam, you mentioned there is quite a diversions between indices liketion the s&p 500 and equal cap indices. the s&p 500 in orange, weighted&p 500 equal in white. apple, netflix, it will really help you to show -- what is going to happen in 2016? same thing? on the dock and the other on the bone.
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>> i have been in that position, not pretty. >> we were either going to have a big improvement and fundamentals were really going to have to improve, or we were going to get a closure on the gap, and that is some of the concern that began to worry me over the last few weeks. markets historically don't end well. you have a much smaller percentage of stocks driving the index up. on an individual stock basis we seen that.y it is also something that gives you caution. if you are really doing your work as an investor you are going sector by sector.
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are the technicals confirming my opinion here or not? obviously the bottom of the barrel would be commodities and basic industries. challenge with pricing and retail, counterintuitively. price in at the share the last three months, losing 34% of their value. if they are going to navigate markets now, they have got to focus on this type of thing and be more patient with what you own and when you own it. >> how are you positioned? >> we were positioning a little more to the short side. continuing to have a bit of a negative bias.
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we have so much complacency. everybody me like not is positive but upon durance of complacency. i think it is something that you are going to have to apply timing. in the second half of december we had six or seven days. >> you are being rewarded for that net position right now. down, only down by 2%. the dow is about to drop almost 350 points. the benchmark down 1.7%. i believe it is the last time you were here, it has become a
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stock tickers market. you are going to be rewarded for conviction. the problem is everybody has been paid for beta. i put together another chart that shows a nice divergence. this is effectively a long short , an index of long short equity fund managers. ince the market bottomed 2009, beta is the place to be. do you believe 2016 will substantially close the gap the between what was supposed to be out for and beta? >> it was predominantly positive for a period of time, very aggressive with monetary policy.
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these guys are predominantly long bias. they are dragging the performance. but that doesn't go on forever. it was my feeling we were entering that phase, where the gears are going to roll the other way. that is a double-edged sword. if you have effective hedges and shorts, you are going to be in a much better position. it requires more tactical skill than most investors are incensed to perform. going to be a tough environment. >> it is very rare ucf high-yield or distressed
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investor going on short. do you think we are going to see more funds shut down or have to change strategy? how many arere going to shut down, but i think it will be an ineffective environment for a lot of those funds that have that model of having a static exposure, long bias, looking to capture good stocks on the upside and bad stocks on the downside. of the fault lines that appeared. credit got extremely cheap. that will be the next chart next time we do this here. i think credit is interesting now. the gap between credit and s&p is likely to shrink. >> the dow average has fallen 300 points at the open.
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apple down 2.5%. it is the bigger drop, 2.2%. last year you had tech, consumer discretionary, and health care. if you pull up the imap function, it is all red. this darker red is doing better. energy is almost unchanged. financials down 2.3%. it is a broad selloff. the winners last year are the losers on the first day of this year. >> they were the leaders last
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year and already 7.5 minutes in. not trend make. if you look at a chart, we are back to 40. you are seeing volatility pick up here. thoseant to talk about tanks stocks and market technicals. -- those bank stocks and market technicals. could this be investors selling because these are the companies that did so well because they think the market is going down, they are going to take profits and and her back in as we go lower? >> that is definitely part of
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it. those are the two largest s&p sectors. the same token it tells you where the concentrated money is. those other groups that have the most risk. i think those present the most risk, where some of the sold-out -- sold-out levels like energy won't go down because it is not widely owned. if you have your p/e ratio way out, either earnings are going to be up a lot or your prices are going to come down. they can groweve their earnings enough to warrant the prices? think stocks like amazon and facebook left the earnings planet a long time ago. those stocks are basically
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telling you that the market catalyzing nation opportunity, the economic value they are creating is so substantial that the short-term focus on their earnings, those multiples really don't matter. the that is those guys are building real economic valuation. you wonder why the stocks haven't been hurting when they miss earnings. barely creates a blip. >> for a moment you were beginning to sound market value investor and then you weren't. >> i focus on economic value, which focuses on considerations and market opportunity. because of the opportunity over the long-term is large, we have owned amazon over the cycle. you have to look past the earnings and current cash flow to understand that their idea, at least behind driving market
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share, is taking a lot of share and at some point they will have taken enough share -- >> a 350 times multiple. the basic laws of nature have not been suspended. sooner or later they have to earn themselves into that valuation. are we talking three years, five years, 10 years? >> over the longer term, do these companies deserve market gap? they are changing the entire face of commerce and sales as we know it. this innovation, going on the same time that deflation has, that is what neutralized the market. -- theythey are both are both valid stories.
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>> you want to be on the innovation, not displace inside. it is now crossing to positive for the day, wti spiking the high on the day. >> west center tech media is moving up. a surge would be 15%. we do see oil stocks a name ground and commodities are one of the few asset classes rising here. brent up three and a quarter percent. what i think is really interesting to watch his
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carmaker stocks. it is fascinating when ford and gm are valued at or six or seven times earnings. these are companies getting margins that you hadn't otherwise had. been great with the f1 50 but gm is getting over 10% with their margins as well. cars thanelling more they have ever sold in the history of ever. doing not they didn't do well over the last five years. the stocks don't move and i wonder why. >> there is an apprehension among the investment community that a lot of the man is helped by this big tailwind of low rates. there is a healthy amount of suspicion how much these run and auto sales can
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continue as the federal reserve inflicted interest rate policy. about a car talk stock from abigail doolittle. she is looking at software electricity car play. your point, meeting the charges down. hitting the low end of the range for fourth quarter. fray 2015 delivery number. investors have been wondering for weeks where the numbers come in. even though they didn't match guidance at the low end, it is being perceived with the low
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end. some investors are likely pleased. >> berkshire hathaway was a dud.
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>> we need to bring you a quick update on what is happening in the markets. it has translated through two u.s. benchmarks. matt miller, somewhat of a scary picture if you went into the new year hoping for green.
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>> it is only the first day of trading. it is global. one of the interesting things i they say this morning is have wiped out one third of their 2015 game. 1%.s&p was down 7/10 of 2015 plus one is a drop of almost 3%. >> i would like to .1 thing out, the last two times the first day of the year was trading down 1% was 2001 and 2008. when people look back on markets, they look at moments like this. the financial crisis wasn't that long ago. >> it is the greatest year ever.
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it is kind of a stock trader's almanac. >> it feels to me like their short-term impetus, the market was acting like it had a hernia belt on. >> we look at the month, down 11% for the month. the market is sending a signal. off, theield sold question is if high-yield would bounce back. >> you have to give matt miller credit. oil already dropped half a percent in the last five minutes. sector -- iy thought you meant as far as my jet. warren buffett's investors
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had plenty to celebrate beginning in 2015, it was warren buffett's 50th anniversary. --urke shire hathaway shares and burke shire hathaway shares 's worst performance since 2000 eight and significantly underperforming the s&p 500. seattle -- noah from seattle. the long-term investors have enjoyed some extraordinary gains under his management. >> that is exactly the case. there are a couple of factors. a it ironic, but a guy known for his stockpicking ibm and amax were significantly down for the year.
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you also saw some challenges in the operating earnings. the underwriting profit was down about 40 something percent. there are some real challenges. you think of warren buffett as the greatest investor of all time? there are some hedge fund managers who are very critical. phases -- >> market phases change over time. we are in a different environment. i think that some of those stocks are becoming tough with them.
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that was going next to warren buffett. it was right after the 1987 crash. you have to buy everything you can. over the course of your lifetime you are going to do great. i remember for sure. central engine of their insurance business has been great business over time. have had great success in their holdings in the past, and now they are experiencing some some -- experiencing some tough times. greathink that is a point. buffett's mo has been to stick to companies he knows, and the ones he knows recently have had some problems. >> i am looking at the five-year trend. ibm and a couple
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of those stocks, how would it look? >> that is a great question and one of the fascinating things in the last year. you look at another investment on the year. he ended up with a quarter of that company. what you saw last year is that investors really look past that. they didn't really factor that in as much when they were devaluing stocks. >> thank you very much. liam dalton is staying with us. we are watching the markets on the first trading day of 2016. plus final thoughts on bloomberg .
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looking at the boards, continuing to be in red. the dow now down. theight improvement, but red day is not how people like to kick off the year. that's going to do it for the day, special thanks to ask e.m. -- two axiom -- special thanks to axiom capital manager. see you tomorrow.
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>> it is 10 a.m. new york, 3 11:00 p.m.don, and
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in hong kong. from bloomberg world headquarters, good morning. here is what we are watching this hour. it is a global meltdown. the dow plunging more than 350 points at the open. we are reacting to the worst new year ever for chinese shares paid attention's flaring up in the middle east. saudi arabia and gulf allies cut ties to iran after an attack on the saudi embassy. look like general motors investing in- is the right against uber. markets are tanking. we are deepl


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