tv Whatd You Miss Bloomberg January 8, 2016 4:00pm-5:01pm EST
scarlet: u.s. stocks closing lower this friday after a very volatile week. the question is, what did you miss? to 2016.a shaky start why you need to pay attention. we hear from wall street's biggest players. report exceeds estimates, but why this continues to be an area of disappointment. alix: how long will this volatility last? we will speak to a former advisor for the inside scoop. thelet: we begin with markets. china was at the root of it all week long.
gains in china did not have a lasting impact on u.s. markets. higher, and got a bit of a boost with the jobs market before falling. joe: you saw futures instantly pop up, and the china rallies, and then we got the good jobs report, but in the end none of that helps. all of that was supposed to be good news, but we ended quite low, and it is the worst five days start to the year ever. alix: one stock that up to the trend was yahoo!. we got word in the middle of the day that they were considering an outright sale or reassessing a spinoff of an internet business. they are still looking for a plan to avert this potential proxy fight. there were individual company stories that were quite interesting today. end, riskut in the
off, that mentality prevailed. the week numbers show that. alix: they do. you can see how ugly it was overall. investors pulled about $8.8 billion from funds all around the world. the s&p off 6%, the worst part ever.-day start the vix had ending over 50%. the dax the worst-performing stock market in europe, worse than greece. they have a lot of exposure due was thets, but this worst week since august of 2011 .or the dax joe joe: ugly start for germany. china, thed in
biggest drop for the yen. the biggest strength for the dollar. that is the biggest move since august as well. oil prices, we miss you when you $32.10y, they are up to a barrel. hovering at 10 year lows. of course we have to talk about what happened in interest rates, coming into this week we saw the two year yield above 2%. .94%.sly now, we alix: treasury strategies are hurting. scarlet: some of wall street's biggest names weighing in on the volatile market right here on bloomberg television. ♪ >> i am absolutely bullish on
china this year, in the sense that they have greater ability to continue to stimulate their economy and maintain political stability as a consequence. investor should care about the chinese economy, less about the chinese stock market. when they start pulling should get it gets like this, it erodes confidence in their future growth. >> i think that the next thing that will happen is that all of the asset markets, like the titanic, will crash. all about if you own something other than the s&p. >> china is not crashing. forget about the equity market. what you really should see
concerning investors around the world is the currency. doing is nots been only weakening its daily fix, but it has been losing control of it actually market -- actual market. that is significant. scarlet: now we are looking at the three most important things you need to know about markets today. intold to take a deep dive my terminal to take a broader look at the s&p. we know that this week was very valuable, we can see it right here in the markets are it and wanted to compare to what we saw back in august of 2015. we have not reached that low, we still have a view more points to go. significant. you mentioned this earlier, with the dax being a big loser of the week. most trusted and crowded trades of 2015. this goes back to the fourth
quarter. you can see here, with this selloff, it is the worst for warmer. it did not perform better than the u.s., which is in white, or , but certainlyd this sentiment led people to cut back their equity exposure, particularly to europe. they had piled in so heavily. joe: that is interesting because a lot of european data was not so bad. but the economic data was not where the story was. i want to dive into the terminal and look at apple, which is its own asset class by now. today,ced a little bit but that is a very grim a chart. the two lines are the 200 day and the 500 day moving average. really falling out of bed. every day out this week, i about an some don't analyst cutting their iphone note about an
analyst cutting their iphone estimate. scarlet: a terrible forecast. you can see all of these charts and more on twitter. alix: archie u.s. economist at jpmorgan joins us now on today's solid jobs report. jobs added.,000 but wages are not keeping pace. have we reached the cycle of the wage growth? evendo not think we have begun that process. presumably we will see the jobs numbers close to what we have been seeing. we will see the unemployment rate continues to fall. wage growth should pick up, it has just taken a wild to get there, that is for sure. joe: today's number was kind of a monster. nice upward revisions to the last two months. but the unemployment rate stayed at 5% while labor force patient text out -- participation rate
went up. we making a full employment at the fed had thought that are we not as close to full employment as the fed had thought? are we not as close to full employment at the fed had thought? >> i do not know that one number will resolve it. joe: some people are saying we could retain where we are with the labor market and 90,000 jobs for a month. 290 2000 jobs per month, we cannot get it to go lower. that would suggest that is something else. >> there is a lot amount of discouraged workers that are on the sideline, ready to come back anin. i think you have to look at it on a trend basis.
alix: if you look at the five year yield and the 30 year yield curve, we saw a steep it is the market is interpreting as lower for longer. that will help inflation, but with pressure in the yield in the front and. is that a correct in the interpretation? >> i think so. in those minutes that we got on wednesday, we now really want to see actual inflation develop. not just forecast inflation. earningse types of numbers and wage numbers, it does not give them a lot of urgency to move. i think there is a lot of risk thery well hold off until midyear. scarlet: what does this tells about the maximum unemployment and how much higher at can go? think we are pretty close
to full employment, but there are some shadows left. interesting about that rise in participation, it was not participants coming back in, but fewer people retire and leave unemployment. i do think we're getting close itthe full employment rate, is a very inexact science of where that is. obviously, the worst year to the start of our stockmarket wise. i know technically the fed does not care about it and is not trying to baby the stock market, but everybody knows or thinks that they go back and forth. the market gets about the fed and that the fed cares about the market. what does a week like this due to the expectations? >> the stock market went down in a week when the dollar was a pretty strongly. i do not think those are
reasonably correlated. the fed cares about the strength of the dollar. they show that last year. if the dollar continues to get concerned about what that means for trade and factories here. that also means weaker inflation pressure here. the market matters, it is one of many financial conditions but of the financial conditions that moves them this week, the strength of the dollar also to question if they can get that second hike off anytime soon. if we wind up trusting bond market size, what kind of volatility doesn't have to create -- does it have to create? likee leadership is more three hikes, so i do not know if there's a huge gap, particularly in the fed that the market may be pricing in a tail risk scenario in china or other places. i do not know that there is a
administration is extremely pleased by the capture of el chapo and congratulated mexico's government on nabbing the drug trafficker. he escaped from an execution security prison six months ago -- maximum-security prison six months ago. president obama has promised to a bill changing his health care legislation. the state department has released another 3000 pages of e-mails from former secretary of state hillary clinton's private e-mail account, but they missed the court ordered deadline by one week. releasedtment has now 82% of the roughly 55,000 pages of ingles she turned over after she left office. a philadelphia police officer who was ambushed overnight is expected to survive. he was shot 13 times at close range while sitting in a marked
patrol car. the suspect is now in custody, and the police commissioner said the suspect confessed to the shooting in the name of islam. the officer is in stable condition. global news 24 hours a day, powered by our 2400 journalists in more than 150 news bureaus around the world. back to give. that affecting you. -- back to do. alixyou. alix: thank you. a deal with the medium and long-term economic malaise, the traditional methodology does not work. a structural reform is needed to address the root cause. the chinese economy had its slowest quarterly expansion
since the third month of 2009. joining us now is director of global macro research at brady won global. he is one of the top researchers on china, and has advised several government on that country. thank you for joining us. what does an l-shaped recovery mean? you arebasically means not going to see a major growth acceleration. we are talking about espresso, th coming forward overtime. the chineses that government is pushing the wrong button at the wrong time. the reason i'm saying that is because we all understand what the problems are in china. adequate demand. theyu look at the country,
save a lot, 50%. there has been a massive fallout in capital investment. we know that the prices are theing, especially in producer price index. if you look at nominal gdp, real gdp, both have fallen to a level that is not far off from 2008, 2009. demand is a real problem. and yet the chinese government is very reluctant to implement a large-scale fiscal stimulus. instead, they want to push through supply-side restructuring. i am all for it, i erik do not e wrong. what to do not forget that the supply-side restructuring is always income and price distractive, at the very beginning. uctive at the very beginning. destroy a lot of
capacity, you have to lay off a lot of workers, and you're probably going to exacerbate the inadequate demand problem, creating a risk of a downward spiral in growth. that is why the market is very concerned, and that is why the chinese and asian market has been selling off. not because of the circuit breaker, but because it is a problem. joe: how big of a concern is this outflow? we saw a hundred million dollar trade, swamping whatever game they may have made. how much anxiety is this making an overall concern? largeyou have a very outflow cap, with monetary policy being eased, the only exchange a fixed regime is to increase your fiscal stimulus. easy money, the only compensation mechanism to hold onto a currency.
if you do not want to increase fiscal stimulus, if you do not want to increase public sector spending to offset the drops from the currency side, then you basically are going to lose your reserve because of the expectation that the currency will have to eventually fall. it is not because of the chinese a currency being massively overvalued. if you look at the currency measure, the chinese currency is not that expensive. the prices have been falling for 40 summer months. some months. if you just allow a downward drift, that creates expectation that is a one-way valve. they are trying to convert the rustic savings into the dollar,
because everybody believes it is just one way to go. i think this is completely due to the fact that they do not know what they are doing in terms of foreign exchange rate management. they should just let the currency go. a 10%e going to create depreciation, and the market is going to start to rally because the currency is not expensive. still datingre market shares, and exports are still outperforming every country in the world. they are still accumulating surplus. they are still getting market shares. scarlet: what else should the chinese authorities be doing? >> they do not have to do anything. right now they are bleeding the reserve about $100 billion a month and if they let the currency go, they stop managing the market. you reverse the market expectation and one shot. this is a very bad management, very similar to the stock market regulators. it does not seem to be they know
also deleveraging on the corporate side as well. joe: this deleveraging question is a key issue. we know there was an explosion and chinese corporate debt and it has been dollar-denominated. currency it the only makes it more expensive. they are in a catch 22 on this question. how do the authorities deal with this conundrum? >> i think the problem is slightly exaggerated in my view. the country has been accumulating foreign assets. on a net basis, the country does not go a lot of foreign currency that. - owe a lot of foreign-currency debt. the real story here is that the
chinese economy as a whole is very under leveraged. you look at the private businesses, the private businesses do not have a lot of the chinesebecause banks have rarely lead to the private businesses. that is why the chinese savings rate has been high. it has been high because the corporate sector savings have been very high. the private businesses have to keep a lot of retained earnings to finance their own operation. that is why the supply-side is trying to do the right thing, meaning they try to reduce that borrowing costs for the small private businesses. the problem right now is really -- they do 20% output, but consume 80% credit. i do not the country as a problem. a systemic
as a set of the very beginning, we do not tend to run into systemic problems when you have a net assets, net foreign liability alix:. as we see china dedicated itself to supply-side, and reverting stimulus, how short-term is this pain we will see? >> the market will be very painful, and i think growth is probably going to slack a little bit more. i think the price deflation is going to persist longer. they are going to develop deflationary tendencies. we are going to have some market growth, so we will force the get chinese government to increase the stimulus. scarlet: thank you for joining us.
so your business can get back to business. sounds like my ride's ready. don't get stuck on hold. reach an expert fast. comcast business. built for business. scarlet: i'm scarlet fu. let's get the first word news. rami: first up, the mexican president is speaking right now to the country. this is after capturing fugitive drug lord el chapo. recaptured actually. he said on twitter, mission accomplished, we have him. there was a $5 million award leading to the capture of guzman. he escaped from one of mexico's most secure prisons in july using a sophisticated tunnel that opened into his shower. two people with ties to islamic
state have been arrested on terrorism related charges in texas and california. one of the suspects is from syria who was accused of lying about his travels. there are no indications they planned terror attacks. nearly 100 homes in australia are in ashes, consume to a raging summertime wildfire. it scorched nearly 200 square miles and it is threatening other towns. officials claim it was sparked by a lightning storm. it has destroyed the most territory in australia in three decades. in the u.k., london smog. it is only eight days into the new year and the city has had smog for the entire year. it exceeded the limit 19 time so far. vehicles with diesel engines is the factor. they have broken rules ever since 2010. news powered by our
journalists at 150 euros. 0 bureaus. scarlet: let's get a recap on how the markets closed for the s&p 500. today, closing near its low. we had this roller coaster ride where we started out with gains. futures climbed after the jobs report was better than anticipated. the dow climbed and then losed as much as 199 points. joe: it looked like today would be a good day and started out positive philly -- positively last night when the chinese stock market did not collapse last night. all of this seemingly good data was not enough to fight this force of gravity that has been bringing down the markets. alix: $8.8 billion across the
globe. i want to point out oil. today," $33 a barrel. i don't know where the next support will be. we have not seen these levels in the last 12 years. this is definitely a danger in the market. our chief economist told us this is more important than the jobs number. falling oil prices are most significant for the global growth economy. it is a weird world when the jobs report seems like an afterthought. scarlet: that is true. let's get down to the bloomberg terminal to see the stress we see the in these investment-grade spreads. is white line you are seeing sectors and the investment grade. energy materials are the yellow and red lines. it is not just them. it is across the board. utilities is on the rise. health care, financials, communications have been rising
in the past few weeks. you can kind of really get perspective. this chart comes from michael . he said overall portfolios will start having a really what time -- rough time. they will be hurt across the board. joe: can i see a five-year chart? scarlet: yes, you can. stand by. we have not seen these levels since ever but we are definitely above the levels for the blue line which i don't know what it is -- communications. we have not seen those level since 2012. alix: i would take a look at small caps. they were getting hit just as hard as big caps. it might be counterintuitive given it moved on the domestic economy which is holding up better than the global economy. this is a ratio. when it slopes down as it has been, the russell 2000 is
lagging behind the s&p 500. that was the case since mid- june when amazon, facebook and google app had it in the holding pattern. given the jobs report and the u.s. economy is sheltered by the global headwinds then perhaps europe, perhaps we would see in inflection point and it might take off. you have to be pretty brave and i'm not sure anybody is ready for that. joe: when i look at it, yes, the domestic economy is holding better. alix: whatever they can sell. joe: i want to bring in one positive note. it is data based on today's jobs report which seems really good. this is the spread between the unemployment rate and the rate for people who don't have a high school degree. back in 2009, people who did not have a high school degree, their unemployment rate was over 6% higher than the main unemployment rate. it hit a new low.
1.7%. one of the best spreads ever. to me, the labor market is getting tighter to the point were even people who don't have much education are finding it easier to find jobs. that seems like good news to me. scarlet: it is another way to push back against the argument, what kind of jobs the economy creates. joe: last and less. scarlet: u.s. gdp growth is likely to stay stagnant despite picking up, according to morgan stanley. ellen is the chief u.s. economist at morgan stanley. your growth forecast is well below consensus as well as the fed. what do you see as a negative? ellen: i think that here we are entering a year where the fed possibly is going to be continuing a rate hike cycle. it is difficult for us to see how do we accelerate into that in a rising interest rate environment.
instead, we think growth holds up fairly well in the raising environment. it does not accelerate so we think they have it wrong. i look at where we are tracking for gdp in the fourth quarter -- a very low. that is not a good rant going into 2016. it will make it difficult for the fed to hit the growth targets they laid out for the year. joe: it looks like q4 will be pretty mediocre, but we know job creation in november, december and september was quite strong. the nation has ongoing weak productivity. what are you attributed to the malaise? ellen: i think productivity should be the number one topic for 2016. i think there is a lot more study that needs to be done. one is how much of it are we miss measuring? nearly the government five years to capture how that was affecting productivity in the dot com boom.
it might be higher today than where the government numbers are reporting it. can i tell you how much? absolutely not. i think we have to look at where the jobs are being created. this is something that you touched on. these low-wage paying jobs. it picked up mostly in the 16 to 20 years old. we areis the type of job creating on the service sector jobs, low-paying jobs in industries that are not big productivity enhancers. we had a very big shortfall in capital equipment investment since the financial crisis. all of that together has been weighing on productivity. i think there are a myriad of reasons and difficult to get a handle on what that means for the long-term economy. if you are larry summers, you point to the fact that it will
never pick up. i cannot fully grasp that argument. i think there is some wrong measurements there. there is a lot of r&d that will result in productivity but i don't think it is the kind of level we can expect, that we have been getting historically. scarlet: when you look at the jobs number, it was still robust. then, you look at gdp which is kind of mediocre. what do you trust in telling the real story about what is going on in the u.s. economy? ellen: this goes back to domestic versus external. you already touched on it in the show. gdp growth in the fourth quarter and all of 2015 was really hampered by a drop in energy becausent and the fx this is the segment of the economy that was the fastest growing piece of cap x for years. the strong u.s. dollar which is a reflection of weaker global environment and trade which weighed on growth.
if you look at the domestic economy, that is what drove the fed to go off zero in december. what they continue to reference is domestic economy. a great jobs report -- very difficult to find anything wrong with it. you can say there was some warm weather affects, but come on. maybe that is 200,000 instead of 290,000. i will take 200,000 all day long. it continues to be domestic versus external. joe: are you getting anxious about this ongoing flattening of the global curve? ellen: i think it has to make equity investors nervous. it is not a great environment for equity investors. when i look at what long-term interest rates did after october 1929, after the last financial crisis, they stayed load for decades -- low for decades. we have been in this environment of low long-term rates for a
long time so it is not unthinkable as the fed continues to tighten, long-term rates may not move much. this overarching theme of the flattening of the yield curve may be with us for some time. if i can speak about it in broad macro terms. it makes for difficult investment environments. what we are seeing this year is that market volatility will be the story whereas last year it was my story -- will the fed's raise rates or not? now i feel more relaxed. it is someone else's problem except the number one question i get from clients right now is is this going to put the u.s. into recession? scarlet: for now, the answer is no. ellen: it is very hard to get that. watch the credit spreads, the sustained selloff inequities. that is what could damage the economy. scarlet: great stuff. thank you for joining us. coming up, saudi arabia is considering -- is the state
scarlet: it is time for the bloomberg business flash, a look at the biggest stories right now. can manage client money but not until 2018 which is part of a settlement by u.s. regulators. a former trader. subjectedce will be to routine examinations. he neither admitted or denied allegations. yahoo! is reassessing whether its spin off its considering an outright sale. they say yahoo! still has not
said they have to sell but there is internal thinking. alix: among the reasons, a proxy fight bite activist investors. scarlet: shares of twitter ending trading below $20 a share. it has fallen for straight days after plunging 35% in 2015. jack dorsey, who took over as ceo, is trying to turn around the company with product improvement. they will report fourth-quarter earnings next month. that is your bloomberg business flash. europe $2.5 trillion iv -- ipo. saudi arabia may take the biggest crude oil company public. it is the producer of saudi arabia's reserve which is itstimes higher than closest local rival. joining us is our columnist.
liam, what would it mean for the market if saudi arabia was able to let part of it go public or the whole company? what would it look like? liam: it would undoubtedly be the biggest thing that has happened in the oil industry in a long time. it has a lot of implications for other oil companies in general. just to take one off the top of my head, if they did this in an international stock exchange, it would be negative for companies like petro china, other big national old companies that are listed. that would churn into saudi aramco until they realize. reallocated. joe: what does this say about saudi arabia's position that they are floating the idea of spinning off part of it?
we know they are bleeding a lot of cash because of the low oil prices. but does it mean they think oil will not come back? liam: i think there are a couple of ways of looking at it. one is bullish and the other is bearish. saudi arabiane, has a new king. it has a reshuffled in the top ranks. it is really interesting to see the very secretive and monarchy talking about this radical move. i think it talks to how much pressure is on the country in terms of its finances, its military position, its relationship with the u.s., you name it. one parallel i was thinking about today is there was a big country in the 1980's that was hit while old price -- by a low oil price and that was the
soviet union. i'm not saying that will happen to saudi arabia but it looks quite vulnerable. isrlet: what is interesting they never public an audit of their reserves. a lot of the details of their fields remains secret. there are a lot of black curves. we do think saudi aramco's reserves are 10 times the reserves of exxon mobil. liam, if aramco goes public, is that good news or bad news for exxon mobil and others? liam: i don't think it is good news because you would probably see a vocation -- rotation from them. it is bearish for oil long-term because if saudi arabia really wants to do this, they are cashing in a bit on front on saudi aramco. you have to ask why would they do that?
it may be in part because they no longer think that oil demand will keep growing come what may. joe: there is a lot of debate. what kind of evaluation saudi aramco is saying. companies like exxon mobil have bigger owned state entities that aramco seems to be run better. where do you see this questioned? has ai think aramco good reputation in the sector particular for a national oil company. in terms of valuation, it would be worth an enormous amount but it is hard to say because it is not really an oil company in the way we tend to think of it. it is really an oil company and an industrial development institute for saudi arabia. there would be a discount applied.
at the same time, they have access to a big reserve. it is very low-cost. it would be worth much more than exxon mobil. alix: it will be really exciting to watch. $310 billion. that is a lot. thanks a lot. you can find it on the commentary section on our bloomberg terminal. scarlet: we will tell you three things you might have missed in the u.s. economy. ♪
we have to start with the fomc and how often they see risk. matt: this is something people do not really look at right away. this is this great chart that we put together. it shows how many fomc members of the 17 members on the committee see upside risks to their unemployment rate forecast. you can see there was a spike in september. up to six people thought it was likely the unemployment rate goes up and down. it explains why they took the path in december. it went down to two people in december which shows you they are more comfortable. joe: in the text of the minutes, it was clear inflation was going to have more anxiety. matt: that will take the front seat going forward. i think today is a perfect example of how little the jobs outlook matters compared to before liftoff. scarlet: construction jobs, we
know there is tightness in that part of the labor market. does that seem to be turning around? matt: the good news is construction payrolls as a percentage of total u.s. jobs is going up. you can see it is still very low relative to precrisis. i think this eliminates what is happening with wages right now and why it is so low. you can see that the percentage of temp jobs as a percentage of total u.s. jobs is at an all-time high. joe: construction jobs pay well. matt: exactly. we don't think of temp jobs paying well. we have these interesting dynamics that explain what is going on, why we are disappointed with wages. alix: will beget snapback with that? matt: looks like the outlook for construction is good. this goes back to what we were talking about with the risks to the unemployment rate because a lot of what we saw in august-september, that was when we had a lot of market volatility.
the jobs number we got today is like pretty data. we have to see what the january report shows. joe: 3% of the employed workers were not in the labor force in the previous month. what does this tell you? matt: it is a wild stat. if you look at the participation rate, it takes out all the people who are retiring annexing the labor force. these are the people going back in. in any given month, almost 3% of people with jobs were outside the labor force the previous month. that speaks to this big wave of people that are reentering. it is great news. it just goes to show there might be a lot of slack than maybe we think. alix: thank you so much, matt. scarlet: coming up, what you need to know to gear up for next week's trading. ♪
scarlet: don't miss this bank earnings take off next week with jpmorgan on thursday followed by citigroup on friday. it will be one area where people are not expecting a lot of strength. joe: bank stocks have been getting slammed counter to all the people that have been saying it would be great for rates. alix: check out health care stocks next week. we have earnings out on monday. 269,000 tons per year. there are like no more smelters left. there is a conference by jpmorgan on thursday. joe: i'm looking at china data. china trading exports and
john: i'm john heilemann. mark: i'm mark halperin. with all due respect to marco rubio, you are a shoe in. ♪ tonight, we are going for bush'sf a lineup for jeb campaign event in south carolina. we will start with the controversy that is already well-worned but might require a little bit of explaining. crisis.e shoebia on the surface, this is about the high-el