tv With All Due Respect Bloomberg January 7, 2016 5:00pm-6:01pm EST
scarlett: u.s. stocks linked to a close that marks the worst 500 on record.&p to the east, where australia and new zealand markets have just opened for a new day of trading. tokyo will open at 7 p.m. new york time, shanghai at 8 p.m. new york time. will the selling person test? this is a special edition of "bloomberg markets -- will the ?elling persist this is a special edition of "bloomberg markets."
from bloomberg world headquarters in new york, i am scarlet fu, joined by my cohosts keeneeisenthal and tom . joe and i were just talking about the mexican peso weakening and oil still soggy. barrel.to $32.10 a we are going to count you down to the opening of trading in asia. tom: do we really know what it's going to happen in asia? help me, joe. joe: i don't think so. trying to read some of the signals, but i don't think anyone has any idea in
part because they changed the rules today. they had the rule in place that they would halt the market after a 7% decline. today, no training wheels. we don't know what is going to happen. had plans to put some circuit breakers in place and limit some of the selling, but now they have removed those and losses could exceed 7%. trading 30ou halt minutes into the day, the message you send is get your trades right. that causes a lot of anxiety. this is something bloomberg markets has worked on 472 times, nothing original by me. i will use the dow as a proxy. we are at the correction point for the most part. coming off a high. 14,000r market is in the vicinity.
forgotten what going down mains. we are really not there yet, given the hysteria we have seen in the last 48 hours. joe: obviously, this has been a rough start to the year, but you're right. these are not gigantic moves yet. the treasury markets really have an -- have not dovetailed with what we see in the remember the or in oil -- remain the -- currency or oil markets. joe: is china selling down its reserves? you are talking about the dow jones industrial average and showing us what a correction would look like. i wanted to pull this up inside the bloomberg terminal.
424 points. points akin to the 450 we saw two or three days ago, so you see volatility rising. let's go back to july. it doesn't look that volatile in comparison to what we saw in august. tom: is this a you do in the afternoon? this is way too sophisticated for early morning. i was looking a volatility earlier. a lot of these measures, it is not august yet. even as the index has come down, it is not the same level of intensity and fear like we saw in august after the chinese devaluation. tom: it's 5:00 in the afternoon. pros are going to go home tonight and be glued to their bloomberg terminals because there is a mystery here to the
market open in a number of hours. there is a huge question mark. is the45 p.m. eastern time. tom: you are a font of wisdom this afternoon. aarlet: we want to bring in chief equity strategist. when asian trading begins, and really, we are looking at china trading at 8:30 a.m. china -- shanghai time. what are you looking for? are we going to see panic selling? we will have a lot of sell orders and the markets will be down noticeably, but we are not going to close the market down 7%. that is going to cause some people to say you know what? if i don't get out in the opening, i can get out later if i need to. we unlike some of the stuff saw in august that you are
reporting on earlier. scarlet: i should mention that chinese markets open add 9:30 a.m. local time because currently it is 6:00 a.m. in shanghai. joe: do you think this was a good move to kill the circuit breakers? bob: we need liquidity, and closing markets does the opposite. in my view, it was a necessary move. parallels to august. structural issues, not just economic ones, that caused the selloff. chinese authorities stepped in and said we are going to change some things. we made some mistakes. they did not use those words. experience, is this the point where people adjust their portfolios? do we move around american blue-chip stocks because of the
mumbo-jumbo we see in this market? leading the witness, and away. the answer is no. don't panic. do we need to re-examine our companies? absolutely. but remember, only 13% of the u.s. economy is foreign trade. 87 percent is domestic. less than 1% of our gdp is exports to china. thea matters, but it is not be-all and end-all from an economic standpoint. currency is a different story. i talked to joe weisenthal about 3m, a stock we don't talk about enough because it is a boring stock from minnesota. but the idea of a rollover to come on. it's not even a correction.
is it an opportunity to acquire blue chips? bob: my view is yes. the u.s. economy is not great, but good enough. at some point we will have some stabilization in china, which is clearly struggling as the economy slows and they are trying to rebalance it. when i look that get 2015, among the best purchases we made for of clients were in the month august. i when they are on sale and uy when they are on sale and there is blood in the streets. scarlet: u.s. stocks have been tumbling. all 10 industry groups have declined. all this because china devalued its currency for an eighth straight day. you mentioned that it's a good opportunity to pick up blue chips like 3m, but the real pain has been in some of the small caps. we are seeing small cap trading below where it was in august and september. if you look at the s&p, that is
trailing. when is it time to buy the areas that have gotten obliterated? bob: i think small cap stocks will lag this year. you can find companies that have really good earnings. you need to own some of those, but small generally means less liquidity in an environment where it is back and forth, good news today, bad news tomorrow. just got an e-mail from a fan in connecticut. he made it clear to me that the people watching don't know what happened today. take us away from the complexity of bill gross or what we heard from dan r bess and others this afternoon. explain to the pub -- dan argus and others us afternoon. explain to the public what the ramifications are for the american investor. bob: i will come back to china, which is the main issue, but we cannot forget what happened in north korea earlier this week, saudi arabia, iran, a lot of
things being thrown at the market. china is the focal point today. china's market opens and goes down 7% quickly on the back of people concerned that chinese currency is going to weaken, the chinese economy is slowing, and if i don't sell my stocks now, i may not be able to because they are about to close the market. absence of liquidity. that transfers all the way around the world to oh my goodness, we have a crisis on our hands, and we see commodities led by oil going -- i will say the wrong direction. currencies in china continue to go that direction. people are concerned, is china going to upset the apple cart? i know there are difference thetive and negative to month of august, but you know what? the world didn't end. tom: the parallel is not august of 1998.
bob: i don't believe so. i think they're all kind of other credit problems then. not that there are not credit problems now, but don't forget, the interest rate structure today is very different from what it was then. zero interest rates cover a lot of sins. i think that will make it a little easier to get through this time as well. scarlet:scarlet: bob doll is stg with us. as we head to break, a quick check on whether four days of losses extend to a fifth day. it depends on how the asian markets open. asian markets for to open. crude oil dropped to $32.10 today. a 12 year low for nymex crude.
scarlet: welcome back to a special edition of "bloomberg markets." let's recap what happened today. joe, help me out. the s&p 500 closing out its worst four day start to a year ever. the dow industrials losing almost 400 points. the nasdaq losing three point. -- 3%. joe: these big tech stocks everybody loves last year, all of a sudden, they hate them.
the gold miner stocks which people could not dump fast enough people are starting to buy. quite a reversal. scarlet: what has been consistent is china. it was obviously a big factor today. asian markets are opening in just a few hours. here is what some of the biggest names on wall street told us today. china is predicted to be down 5% or 6%. >> tighten the seatbelt because tomorrow is going to be a volatile day in chinese markets as the retail sector tries to exit and government entities try to buy. >> this is going to be everybody on auto dial to sell their stock. that's not a good thing. >> it depends on whether chinese are good for their word. orit goes down more than 5% 6%, who knows? >> everybody is anxious about china. why? because their growth rate is only going to be 6% when the rest of the world, the developing economies, r 1%-2%. china is still the driving engine of the global economy. >> china is slowing but not
collapsing. i think it's important to make that distinction. that comment from dan, everybody is concerned about china. why? why is the world so concerned about china, given, as you pointed out, there is not a lot of exposure going that direction. we're not that end and on china for trade. -- dependent on china for trade. the china's import and to european economy. exports from germany are very important. currency relationships are a concern people have as well. mohammed said in his last comment, china is slowing but not collapsing. i want to underscore that. china is not collapsing. it is still growing at a decent rate and at a rate that is the envy of the rest of the world. gross talks about further currency devaluation or appreciation in china. formula,o the old
which is manufacturing. confidence about the american investment experience. despite the perception of impending doom, we continue to fundamental and historical backdrop favored the intermediate term upside potential -- the key to me is the fixed environment. we did not crack it today. we didn't go to 199. bob: couldn't agree with you more. the fixed income market is saying this is not a disaster. this is not an implosion. treasuries is the first place he would see that happen, and you are correct, that is not the case. the u.s. consumer jobs growth is good. we will probably get a good number tomorrow. joe you have already heard
about the jobs numbers. how do they look? joe: i can't tell you. what does panic look like? we are off 5% or 6% from the high a few weeks ago? that is not fine. that this is not -- that is not is not a panic. noise could lead to a panic or lead to, you know, the world is not going to fall apart. scarlet: why is it then, to joe's point, are people so up in arms over the adjustment china has made? every tick lower in manufacturing seems to have people running for the exits. this was anticipated. try what i would do now is to divide the chinese economy from the chinese stock market. they are less correlated than most markets are. the reason is all these
technical issues about you cannot sell. if you are in insider, you have restrictions. andmarket needs to open up become a more developed economy. the markets need to become more sophisticated as well. that note, bob doll, thank you so much. chief equity strategist. can see losses of 9.5% over today,t 12 months, but the russell was down 2%. and today, oil is capturing everyone's attention. is still capturing everyone's attention until it stabilizes. hard to imagine that volatility overall is going to calm down. scarlet: if you want a proxy for china, look no further than copper. this has really become the way
devalued its currency once again, the eighth straight day it has let his currency weakened. we want to get some perspective on how china's currency moves are impacting the rest of the world. >> we have to take a look at china's foreign currency reserves, which were down ,omething like $108 billion which was worse than expected. that has bled through to the broader market. we can sit here and talk about stocks. i know you have been doing that and you are probably bored now, atlet's look specifically derivatives and the swaps spread. a swaps spread is a kind of derivatives. it is basically the difference between u.s. government borrowing rates of treasury yields and the rate you pay for more related payments. interbank-libor type stuff. china selling foreign-currency reserves mean that is you --
means the u.s. selling treasury reserves. it is an oddity in financial markets. you should not have to swap. and there has been a huge debate in financial markets about what is driving this. tom: is this where the u.s. should be on the 10 year if china was in selling? is it one or two basis points? is it 10? is it more? it's a big range. there is a lot of uncertainty in the market and we have seen people ratcheting down their expectations. somebody is going to be right and somebody is going to be wrong. and there something you tracy do every day, joe, that our audience may not know. now for every major wall street firm to go from buy to hold or hold to sell. impetus there.
especially with the selling down of reserves, is this, in essence, quantitative tightening? the fed built up its balance sheet, added liquidity. now we see the goldman sachs financial index tightening. china is drying down reserves. our central banks around the world essentially doing the opposite of what key we did? central banks around the world essentially doing the opposite of what qe did? tracy: it's a huge debate. you get things like the goldman sachs financial conditions index going up. obviously, the fed's interest rate rise is playing into that, but the question is whether financial conditions are tightening perhaps faster than the fed would want. analogy, berkeley
said the high price of oil -- barclays said the high price of oil would lead to quantitative easing. with oil so low and saudi arabia assets, that's another pale wind for assets retreating from the market. you really expect to see in three hours or four hours? tracy: i wish i had a preview. tom: there is a thundering silence. to thethis gets back uncertainty point. who knows? you have china doing all sorts of regulatory intervention. if you made a list of everything china has done to prop up its stock market, it would be about 10 pages. predicting the market is almost impossible. predicting how investors react to the possibility of china doing something unpredictable is
even worse. i haven't seen anything nailing it. how could you? the ministry here that i have seen maybe once, too, or three times in a million years. the australian dollar has begun trading. little changed at $.70. little movement. we are waiting for chinese equity markets to open in three hours time. thanks to tracy, executive editor at bloomberg markets. here is my chart of the day, my retirement plan. it's ugly. we rolled over again. my 201 k. cap wait for tomorrow. that's my chart of the year for last year -- can't wait for tomorrow. that's my chart of the year for last year, the commodities index. ♪ the only way to get better is to challenge yourself,
good investment for now. good evening, everyone. your big surprise is 90 minutes until tokyo and then on to the big opening in shanghai. a big mystery about what we will see. scarlet fu and joe weisenthal joining us here at 5:00 p.m. up.asia coverage coming economics, we will get from toni kroos enzi. why are you in new york? scarlet: he has actually been here for, what, three weeks? >> my longest stretch since 2009. scarlet: you have a long perspective and are far removed from the tensions of wall street. you have your own tensions in
california, but you have a perspective that sometimes people don't see here. what kind of rationale can you offer to this risk selloff? the long-term mindset that pimco has has carried over to our new york office where we have 300 people. about is to take a step back. one thing to think about is what the interest rate landscape will look like the rest of the decade. policy rates will stay very low. be under 1% in the year 2020. japan, under 1%. the u.s. may be in the two percent range. decision. make a is this the point where assets begin to affect the economy and make the interest rate back drop less important? we say no because it looks like europe lookles in
like they will continue. we are seeing a 2% rate of growth, which is solid. the u.s. is still around two or so, so as long as there is no recession on the horizon, the interest rate backdrop should be your support net. is there anything policy makers could do, in your framework, to get us out of this viewpoint? what are they not doing that they should be doing? tony: this has been the story since 2000 seven. the world has not solved the aggregate demand -- 2007. the world is not solve the aggregate demand problem. government can try, but they are not equipped to push growth higher. think about investments in people, education, human capital.
what can a central bank do about that? scarlet: but are all central banks created equal? no, as the people's bank of china is learning. have trying, and it does significant tools. we still project to the bank of china to cut rates and use as many tools as it can. you have decades of expertise in the paper market, the oil and the engine. in the two-year maturity and in word -- and in what we quaintly paper, is thel liquidity still good? yes, and you have to trust the debtors will pay their debts back. it is functioning well, but there are questions about
confidence in china and its policymaking tools -- not the tools, but how it will use them. it has the will in the wallet, but does it have the wisdom to use them? it is still learning joe: by experience, in some ways. long-term to have a perspective about what interest rates are going to be in a couple of years -- it's still learning by experience, in some ways. haveit's great to long-term perspective about what interest rates are going to be in a couple of years. but how do you view these first few trading days of 2016? the first four days mean nothing. you have to look at the story over a long time frame. the fed had to decide whether or not to raise interest rates and decided against it because of turmoil associated with china after in august they devalued
the currency. scarlet: that happened again. affect federal reserve policy, but let's give it some time and see how the u.s. affairs. the u.s. is a safe house in a stormy world and will benefit somewhat by global tumult. earlier thationed we are the safe harbor. i went to buy our paper. our yields go lower. let's call it 1%. at the same time, china has closets full of viral paper that they are selling in the market. -- full of our paper that they are selling in the market. explain that dynamic. tony: for years, yuan others have bought stuff that says made in china. and others have bought stuff that says made in china. it has used over half a trillion reserves to support its currency. split around to various bonds globally, but mostly to u.s. treasuries.
one very important point in terms of portfolio management is that treasuries have provided the hedge in terms of a big boost in prices that one might expect when there is volatility. price has not gone up in the yield has not come down. place to keepreat capital safe but it has an offset losses in other areas, as you might expect, probably because of the fear of china selling. it has actually happened, as you know. tom: joe has a whole closet full of treasuries. scarlet: what can you take advantage of now given the selloff? long-term investors need to be liquidity providers and not liquidity takers. when those who are selling are selling because they are have to, they are takers, and we are more than willing to be providers. this of course means at some price. there are never any bad bonds or
bad assets, just bad prices. prices are moving in a way that suggests that a value is being created -- for example, in a high-yield bond market, default rates are likely to stay low for quite some time because in the u.s., expansion looks good. whether or not banks are tightening lending standards -- they are not. that would be a good leading indicator that something is awry, but so long as there is want to expansion, you sit back, watch markets, and be opportunistic with respect to volatility. about ife is debate this is the natural end of the easing cycle. you start to see the long end of the curve weekend. or is this mostly about oil? if oil had crashed we would be much more calm. crashed we would be much more calm. tony: there is a lot of baby
with the bathwater stuff affecting the asset class now, and looking at those yields ,elative to global policy rates and continued economic expansion, it it begins to look attractive and you begin to become more of a liquidity provider in this environment. scarlet: thank you so much. before we had to break, i want to show you a chart of one of the most important things that markets today. let's take a deep dive into the bloomberg terminal. all countrywide index. what is interesting as you pull
it up -- g4 45 -- live television. this is what happens when you try to pull up a chart on the fly. what you see happening is that globalpast three years, stocks tend to open the year on a down note. that has happened this year as well. if you look inside for the first couple of days of 2014, 2015, we opened with losses. this turnaround, the losses have been more extreme. down more than 5% in four days. in stocks tend to open the year on a down note. that has happened this year as well. if you look inside for 2015, wer days. it's not all that unusual to begin the year with losses. we will be ok. we will be back with more. ♪
markets have been open for about two hours now. looking within the index, 50 members, 40 stocks were lower, eight and changed, only to hire right now. that is the setup as we had closer -- only two higher right now. that is the setup as we had closer to the asian markets opening. tell us about investor positioning. our people betting that they are going to keep going down? are shorts starting to build up? about shortresting positioning -- we talked about this back in august. onsaw substantial buildup short positions in the s&p 500. around september, as the market kind of bounced back, there was some covering, but it was largely on a benchmark scale. you saw coverage on etf's, but the individual shorts on the s&p
500 is still climbing. why are those still on? two, at what point are people going to cover on that? if you think the picture is improving for specific companies, that could potentially have buying power. but if you look at overall exposure and futures contracts, they are all down since november. it is more like investors are saying i don't really want to go either way on this, i am going to step to the side. lee, who covers asia, is joining us in studio as well. in terms of positioning, a lot of people were getting ready to sell because they knew the circuit breakers were in place. but the chinese government decided late last night to abandon the circuit breakers. why the u-turn? >> it's such a u-turn. the market wasas
hot for like 50 minutes and then at 7%, the whole industry shut down. the regulators want to the u-turn. they don't want the circuit breakers for now because they will accelerate the kleins. y they wantt's wh to stop this for a while. tom: you work on the hong kong news bureau. -- out of the hong kong news bureau. how have the people of china ?esponded to what we have seen do they trust the authorities? do they trust the financiers making these decisions? now, the issue is confidence. what can chinese regulators due to restore confidence? andou look back in july
.ugust, you have devaluation since then, the market hasn't really recovered. that's a key issue they have to address not just a mastic way, but internationally. joe: real quickly, oliver, tell us about some of the distribution of swings we have been seeing in the market. oliver: they are weird relative to what stocks used to do for the past five years. risk wick,to china about the circuit breakers. it's interesting that the ,ircuit breakers -- real quick about the circuit breakers. it's interesting that the circuit breakers went off when they did. circuit breakers are largely in u.s., butrea as the swings in the u.s. right now are
definitely broadening out. if you look at distribution from the bull market up until august, 40 percent of daily moves happened within .4 or -.4. tom: thank you for your perspective. we need to go to asia. we are going to begin with angie lau. what are you specifically looking at? angie: what is going to happen at 9:30 p.m. when markets -- 9:30 a.m. when markets open. as you have been discussing, it is a u-turn out of china. everyone is really scratching their heads. do they even know what they are doing? it seems like they are flying by the seat of their pants. they removed this brand-new circuit breaker rule that started on monday and was triggered twice already. they removed fat, so we are going to respond.
that, so we are going to see how markets respond. will there be a massive selloff? how low will it go today? see chinese government-backed funds step in for intervention? that is what we saw on tuesday according to people familiar with the matter. joe: this is the question i was going to ask. what are people expecting? do people think the authorities will step in and some other way to try to calm things down? angie: that's what the chinese government hopes. they are trying to engineer call in the market. in the market. the one rule of trading is don't lose money. the problem is, they don't know
what the chinese government is going to do next. yesterday, the big story was about the triggering of the stoppage of the meltdown. rules that, we have new that stated that these corporate funds could not sell more than within three months unless they asked permission or told the cfr see what they wanted to do. c what they wanted to do. going tong up, we are speak with one of the most important voices on china. stay with us. our special coverage continues. ♪
tom: welcome back. our special edition of " bloomberg markets." how about this for an evening must-read? dead on about cautious gdp statistics, he writes a note today about chinese currencies. bring up the panel. weakening would lead to other central banks -- joe: i do think there has been a lot of bearishness. the bearishness on the korean won. lots of people identifying that as the currency most likely to
merrill lynch talking about movement going much further. some wouldis the man say helped invent merrill lynch economics. truly one of the world's great china watchers. donald, open question. what would you attempt to of deserve this evening in asia? donald: tom, good to see you again. first thing i would watches at the open whether, in fact, the market opens down and to what the state intervenes to prop up the markets given that they have now suspended the circuit breakers that had been in place earlier this year. tom: at what level are the chinese people or chinese businessmen and women involved in this equity meltdown? discreet to a bunch of fancy people who are a minority in china?
lot ofre are an awful chinese middle income as well as top part of income distribution who are interested in chinese equity. i think it is also important to remember that chinese equity beats its own drummer and is not a very good indicator of equity markets in the u.s. or in the rest of the developed world because it is such a different economy and different structure, and different market environment. scarlet: there's a debate over whether china is headed for a hard landing or a soft landing. does that matter if we are seeing what some people would describe as a hard landing in the financial markets in china? donald: it surely matters. i don't think there is going to be a hard landing. this equity meltdown is very much panic, it seems to me, this week. the economic statistics for the first six or eight months of last year were all bad.
the last four months in china they were mixed. some good. some bad. that has not changed in the last week or two. i don't think it's going to change. so, to me, there is going to be gross. not like you have liked in the path, -- in the past, but decent growth in china, not really fueling a meltdown. tom: thank you so much. it's going to be amazing. the market opening is going to be something i can truly say, in a zillion years, i don't think i have ever seen something like this. scarlet: thank you for watching and tuning into this special edition of "bloomberg markets." open coming up. angie lau will take you there. ♪
the s&p 500 cap's its worst ever start to the year as the turmoil in china sends around the world. 29 minutes of chaos, even by shanghai market standards. thursday was exceptional. bill gross expects more of the same today. and stock circuit breakers, the man who invented the system says beijing got it wrong. welcome to "first up ."