tv Bloomberg Go Bloomberg January 15, 2016 7:00am-10:01am EST
equities? we will ask howard marks. he sees faultlines in the global economy. we will hear from royal bank chairman howard davies. it is a bloomberg exclusive. -- we will hear from royal bank of scotland chairman howard davies. it is a bloomberg exclusive. welcome to "bloomberg ." i'm david westin. stephanie: i am stephanie ruhle. helping us with the red is jonathan ferro. closing out a wild week of trading, and it is not just an exclusive with howard davies. it is a howard exclusive day. ,oward marks, oaktree capital the cochairman, cofounder with us. welcome. howard: thank you, stephanie. jon: another big morning for
markets. crude with a 20 handle. 29:66 -- 29.56 on my screen, down 5% on today's session. the headline in the equity market, the shanghai down 20% off december highs. dell futures down over 200 around 30p 500's down points. stephanie: all of yesterday's gains erased, vanished. jon: vonnie quinn has first word news. vonnie: an order is expected today from the obama administration that would start new coal leases on federal lands. about 40% of the coal produced in the u.s. comes from federal lands. japan, a tour bus flipped over on a mountain road in the middle of the night, and
at least four people were killed. many victims were in their 20's and there was no know or ice on the road here it police in indonesia have arrested three men suspected of being linked to the terrorist attack. those scope people were killed in bomb explosions and gunfire, -- two people were killed in bomb explosions and gunfire. news 24 hours a day, powered by 2400 journalists in more than 150 news bureaus around the world, i am vonnie quinn. stephanie: let's start in china, where we did see another selloff overnight. the major chinese benchmarks falling. it is a shanghai composite we have been watching to see it fall into a bear market once again. if you look at the one-year chart of the shanghai composite, you see the moves that we have seen. originally it fell into a bear market last year. it took several months to do so.
we have fallen below that threshold. notable about this is the velocity with which it has reached a bear market once again. we have seen just a rapid decline, not only in chinese stocks but in global equities for the year thus far. as you might imagine, it is spreading across the globe. if you look at u.s. futures, we are also looking at a sharply open -- we are also seeing a normal selloff, and wti reaching a slow its since november of 2003. as you can see, below $30 a barrel. let's get to u.s. futures. we are seeing a selloff in u.s. futures as well. we have not always seen followthrough throughout the session, so it will be interesting to see, going into a holiday weekend, whether people want to take on risk going into that we can or if we will see a recession that remains like this throughout the day. we started to get some earnings reports and we will get many
more, but if you look at one index of earnings sentiment, it is not very good. this is citigroup's profit surprise index. it compares upgrades to downgrades. we see upgrades exceeding downgrades by the most since 2009. we are seeing sentiment surrounding earnings globally as pessimistic. just cut its forecast. it was 2200, intel a prime example of the companies disappointing with numbers. david: one of the profit reports we got was black rock -- was blackrock earlier today. erik schatzker is here to break down the numbers, as important as capital inflow, right? erik: it is almost difficult to believe that blackrock now manages more than 4.6 trillion dollars.
that is another we almost could never have contemplated. stephanie: it is insane. heard it have described as a thousand billion, which makes a more graphic. erik: inflows, once again, the story for lackrock. -- for blackrock. i built a chart to show or illustrate what has happened with blackrock the last couple of years. blackrock continues to grow every year by the equivalent of a kkr or larger. as a matter of fact, we will get to the inflows because this is a better story to tell. this is what happened in fixed income in the fourth quarter. we know that high yield fell out of bed, so it is important to look at the highest high-yield manager. it shows us that retail money did not panic. $4 billion of retail money
flowed into fixed income. ishares attracted $12 billion of inflows. institutions, not so confident about the prospects of fixed income. institutional money active. stephanie: let's break that down. erik: blackrock attracted new fixed income money. it shows you how much money flowed into etf's. billion was-- $47 equities. we know that investors are getting nervous. we know that there is increased volatility, yet quarter after quarter after quarter they are pumping more money into these companies. break its hard to down. you have a huge month for markets in october, a big rebound. we break down how they finished the course.
erik: no question. but let's go back to the point about -- stephanie: howard, what is your toe -- these massive inflows etf's during a time when high-yield was falling out of bed. you have warned us that this is a scary place to be. howard: we do not know the trend, so we do not know what happened in october versus december. december is the month where the 3rd avenue focus credit fund melted down. you would think people would take a negative message out of that, about magic vehicles, vehicles that appeared to promise more liquidity than is afforded by underlying assets. i have talked about that in the past, and that is what happened to 3rd avenue. here you had a fund with daily liquidity, which held the liquid assets as a formula for meltdowns. david: i talk to some people on the street who say there may be a connection.
i wonder if this is good for the markets and the volatility of the markets. howard: it makes more sense that that would be troublesome. you want to have a lot of little players of similar power, and if one has -- you need a lot of votes cast for the vote to be meaningful. if one has all the assets, then if he is not buying that day, there is no liquidity. that is a good point. stephanie: not a little player, but a very big player is oaktree. you came out with your latest investment later -- with your latest investment letter. i really like this quote. where you look at the market volatility and investor psychology -- that is one of the craziest things in the world. generally things fluctuate between pretty good and not so hot. but in the investment world,
perception swings from flawless to hopeless. time for a was no happy medium and rather little in the range of reasonableness. break this down for us. howard: i have lived in this business 47 years now and i have seen a lot. , i of my favorite cartoons used in the memo. "everything that was good for the market yesterday is bad for it today." it makes no sense, but the market is manic-depressive and it swings from seeing only positive to seeing only negatives and from interpreting everything positively to interpreting everything negatively. and we get these enormous swings of sentiments. stephanie: many people said the news we got out of china at the beginning of the year was not any great surprise. yet it decimated global markets. what is your take on china?
howard: china has a serious set of challenges to convert from exports and construction stimulated by easy money to a domestic consumption of goods and services, to moderate the growth rate, and actually to move to a free-flowing economy. maybe one which is going to have a recession much like the rest of us, which they have not had for the last 20 or 30 years. problem it is a serious . but is it something that is easily surmounted, or is it a disaster? people have gone from the first to the second. jon: the headlines that we get this morning is the shanghai composite back into a bear market. you and i can understand what is happening in china, but for
retail money it is complex. here is the question -- who turns this around? we are set for another ugly earnings season. the central banks are stepping back. who turns this around? number one, things do not turn when they should because people are not able to say now the market is undervalued. maybe it had -- maybe it has to get dramatically undervalued, which means it swings too far to the negative. erik: you have made a good living being a contrarian over the years, taking advantage of so how dole's fears, you know when they are appropriately fearful and when your pendulum has overshot to one side or the other? howard: you have a sense. that is all i can say. it is not enough to be fearful,
you have to know what the market is doing, why they are doing it, and whether it is right or wrong. erik: it is not as though people's concerns about china are unjustified. to a certain extent they are definitely justified. they hard to know where are overshooting the limits of justification. howard: the key is, you have to know, you have to have some bedrock of reality. is not enough. you have to know what the stock is worth. we always talk about intrinsic value. you cannot be an investor unless you know something about intrinsic value. the stent -- the fact that stock is up over 20% does not make it an automatic sell, and vice versa. andou do not have the time intellectual preparation to know these things, then you have to
selling its appliance unit to haier. jeff immelt is reshaping his company around industrial manufacturing operations. read long may putting itself on the block. this is medics company's biggest the emissions scandal may be hurting volkswagen in its own market. its market share in europe fell for the first time since 2007. it has fallen by about one percentage point, still at 25%. ground since the commission's cheating scandal in september. we will send it back to you. stephanie: we are looking at oil headed in one direction, down, and we are back with howard marks. look at this, across the board read. this letter that you came out
with, many people have said it is one of your best. when you look at all the headlines, they do not make sense. what do you make sense of the oil markets when they seem headed in one direction? oil,d: number one, in there is no storage capacity. so a small difference in supply or demand mean huge differences in price. there is no buffer for it. saudisw, perhaps the want prices to go down to weaken everybody else, including isis and so forth, and to make the point they will not be the controlling -- the balancing factor in the oil market. but i always try to make the point, in the last segment i mentioned that you have to know intrinsic value to be an investor. nobody knows anything about the future of oil prices, and i believe that is true.
nobody should take actions predicated on knowing what oil is going to be because nobody does. we had harold hamm on two days ago, and he said the faster it goes down, the faster it goes back up. he said it is not bad news for him. howard: it does not feel like good news at the moment. everybody feels in the business that the solution to low prices is low prices. the less people explore, the less people drill, the less they add to supply. the more people consume, the more they add to demand. .hat turns prices up that is the expectation, but before the ship starts to turn to the north on prices, it is not pleasant. jon: how difficult is it for an investor that wants to invest in these companies? bhp billiton has a big write-down of their shale assets. what about the dividends look
pretty fresh, and for a lot of people they look at that dividend thinking, can that really stay there as it is? how do you invest in credit in that environment? howard: you have to say i do not know what the price is going to years,he next month or but i am willing to take some here. it may go lower but it may not. if it goes lower, i will do some more. jon: are you doing this, howard? howard: in modest amounts. this is the bottom on oil and i will put in all my chips here. there is no justification for doing that. i likefett says hamburgers, and when hamburgers go on sale, i.e. more hamburgers. when oil goes down 77% from its high, you are nutty if you do not take stock. stephanie: they got their doors
blown off, and you blink your eye, and they are now at 20. howard: you just could not know. you could say we are not going to invest in oil at all and we do not know the price, or you could say it is down so we are going to do some. i think the latter is reasonable. you know, number one, maybe if you get security and structuring well -- we are not investing in oil, we are investing in securities. stephanie: it is about cap structure. howard: so you can get high in the cap structure, or maybe you can get sub security, some direct security from some assets. stephanie: it is the same reason why you are saying 3rd avenue is so bad. they would: go beyond energy -- david: go beyond energy.
say it is limited to energy or you can go beyond energy on high yields. where are you on that? howard: it was energy and then it was coal, metals, mining. optimisticrket was and investors retained their equanimity, all securities were firm in price, even the ones which were iffy credits. then when the psychological underpinnings were removed, now you have securities. down." the term "gapping down.e securities gapping people have stopped looking at securities optimistically. now they are looking at securities pessimistically. jon: i want to tie these things up really quickly. when you look at the psychology
of things, based on what is happening with energy and materials, do those things feed into much more -- into something much more real for the border economy? howard: the fundamentals caused the psychology. then the question is, does the psychology affect the fundamentals? i would say a little but not as much as it suggests. jon: howard marks, thank you very much, of oaktree capital. david: thank you very much for writing that letter. it was a thought-provoking letter. stephanie: we are going to take a quick break on "bloomberg ." there you go -- that is a beautiful morning. it, but it is a red sky reflective of those red markets across the board. oil down, hoping for a turnaround. stick around. we have a lot more to cover on "bloomberg ." ♪
jon: good morning and welcome back to "bloomberg ." another pretty dreadful session in china. the shanghai composite back in a bear market. that is the headline for global xt markets. s&p 500 futures, -30 points. futures, -256 point on the .creen, down by 1.57% switch up the board for me, a quick look at those markets. the shanghai composite down 3.5% overnight, down 20% from the december hide. a look at cable and the fx market. down just south of 1.10, -- at 1.09. people talk about yields going
higher, and yields do not go higher. yields are lower again this morning. we approach that 2%. call for yield this year. a move down to 1.5% on the u.s. 10-year. stephanie -- a remarkable call from that man. looking at $29 crude, and thinking it -- love is,: what i howard marks, you know what you like. the issue is, where you are in the cap structure. you do not want to be on the bottom in a market like this. it is friday. we have the yearbook game today. ♪
a whole lot of news. worst looking at the january for wti crude since 1991. we have bank earnings out, wells fargo, citibank, retail sales and we need positive news, and china is officially in the bear market. vonnie quinn? vonnie:." donald trump and ted cruz went head-to-head last night in the presidential debate on fox business channel. at one point, ted cruz accused donald trump of having "new york values >> most people know exactly what "new york values" are. , so youfrom new york might not. i promise you in south carolina, they do. everyone understands that the values in new york city are socially liberal on pro-abortion, gay marriage, focused around money and the media. vonnie: trump said conservatives to come out of manhattan and he
evoked the city's courage during 9/11. the governor of michigan once the emergency declaration for the town where the water is poisoned. contaminated with lead when they used a nearby river to save money last fall. they're seeking federal aid for public agencies and individuals. there is a reason hillary clinton and bernie sanders bashed wall street at work. more than 40% of those planning to attend the democratic caucus, state socialist and anti-wall street are worried. that is according to the latest poll. that is our first word news. global news powered by journalist and more than 150 you spiros. david: thank you. we will turn to tom keene in london today for the morning must-read. it has to do with a shakeout perhaps in the energy sector. tom: we are looking at the
energy sector, but i am trying to get used to my new york values and what my new york values are. stephanie: i don't know, but i wonder ted cruz -- i know he has a view our new york values, but he did not mind that new york money his wife makes an goldman sachs. david: it was not a compliment, tom. tom: oh, really? let's bring in billy joel right now. i must-read -- the must-read today, there could be like a, but how about at the corporate level? you to consider bloomberg gadfly, it is smart. deal,mes once attend this they have to cough up 1.5 gaz dollars for leaving energy transfer at the altar. liam's had less than $200 million of cash of september.
rather large, five times what they make on the income statement. the nuptials are still on for now. i got this was a brilliant asight into what is to come everybody adjust to work oil is. david: exactly right. it is a cash and stock deal, which may affect both of them when the stock is down, but it raises a larger question of, what are the shakeups and to what extent are people waiting for it to get cheaper? be a bankruptcy or default, but the adjustments. i know jon ferro is looking at the nuance and what i noticed is the russian ruble giving way today. where they're going to be after you enjoy your eighth day weekend or whatever. in: those are all proxies the fx market that come under pressure for good reason, but
what i think is really thatesting is putting away wedding, i have never heard that turn of phrase. stephanie: i don't want to hear it again. tom: i put that down because of me. that at level three. jon: the real news, we await to when the companies face the music on the current market. that news this morning, it point to that story. , and iwould emphasize mention this earlier, 7 million or whatever the number is, it is a general miss company. like jpmorgan, not that big of a write-down, but as jon said, it is a sequential path to where the write-downs are going to go given the reality of the market. david: you have talked about the catharsis that has to happen. it will start with something like this. to makewill, but i want clear that i don't see the
catharsis on the screen as a role of thumb in the finance. something likes four standard deviations. in no way do we see that. we are at 2, 2 .5, maybe three standard deviations. we are nowhere near the movement that goes to the technical idea of the tarsus. jon: thank you. i will see you in switzerland next week. emerging stocks dropping to the lowest level since 2009 with chinese equities long into the their market, down 20% from the december high. are you rubbing your hands together and getting opportunities in this market? katie.ighted to welcome you're excited about a number of things, but we talk about crude in a negative secession, so the likes of japan, a big bailout at a time when they are faced with the import costs. kb: at goldman sachs asset management, we believe u.s.
investors are underexposed overseas, so if you look at the data, it shows that investors have only about 15% of their total portfolio invested outside of the u.s.. we think that number should be more like 30%. we are big advocates of getting more exposures to europe and japan. stephanie: how, specifically? katie: we can come back to emerging markets, but getting to strategies that are tracking the index, for example, would be a good idea. we think this is an opportune moment to get non-us exposure. david: i was curious about the japan call, a cousin they have a big debt problem there and they have a problem with the yuan versus yen, so i would think this is not a great time for japan. katie: we are excited about the domestic opportunity and to some extent the export opportunity, but let me unpack that a little.
there is bad news, but we are looking at unemployment numbers on the record 20 year low, so you are starting to see good green shoots of domestic consumption. for example, we like online retailers in japan. additionally, corporate governance revolution is cutting across all sectors, so you are seeing return on equity and getting into the double digits for the first time in a decade. you do not need a lot of top line growth to have a good story and japan. and the linkage between china and japan is a huge positive for meansbecause a week yen tourism is up 50% in japan and they are buying things you might not even think are obvious. for example, japanese asthmatics and we have exposure to those companies in our portfolio. stephanie: like to? -- like who? women care a lot about
what they put on their face. stephanie: then, too. look at david. hello? [laughter] katie: there are problems with integrity inroduct china, and they used to buy american products, but asian companies are quite good at saying, we can customize to the asian face and that has been a big boom. economicd mentioned fundamentals and brought up unemployment. typically, when a labor market is tight, you expect inflation, which growth, but it has not happened. how do you reconcile a multi-decade low of unemployment and multi-decade low of yields? katie: i think we would be more encouraged if we saw more which growth go through. we have a team on the ground there and i spent time there this year. if you look at it by company by company, you are starting to see that which growth go through but it is lower than expected. we do expect the consumption
story to play out that it may take longer. we have not touched on europe, but that is another place where we are focused on the positives of the domestic economic recovery. there are parts of europe growing. for example, even faster than china. one part of europe that we like a lot is ireland and we have exposure there to the domestic bank. stephanie: i know that one of the things you are looking at his violation. julie: this is something other investors have been pointing out, europe is unusually cheap, so this is a ratio the s&p 500 in the u.s. in the middle at the green line and we have the nikkei, the most expensive on the relative basis of the three, but we have seen these violations fall. it has been drawing investors in. of course, if you are anything like the u.s., it will benefit. absolutely.
we really believe from a european perspective that it will be a boon to equity market in europe and japan, which we just spoke about. in addition, you mentioned violations are attractive. the third thing, earnings look good. if you look at europe, the prophet and economic cycle is trailing the u.s. but getting more sturdy. if you look at earnings in europe, they are 60% below pre-price levels, where the u.s. is above the level. violations, earnings, and the ease in central bank is the tailwind to equity performance. be criticaled for because europe and the japanese index are dominated by companies that are selling things abroad, whereas to emphasize the theme we are focused on, we are focused on beneficiaries of the musty growth opportunities in both regions. stephanie: that was awesome. david: that was great. stephanie: shark. david: just great.
vonnie: welcome back. here is your latest business/. apple may be on the hook for a billion dollars in back taxes because of an investigation in europe. they had been accused of using subsidiaries in ireland to avoid paying taxes. apple says they will appeal. the hyatt hotel change is shedding light on the incident last month.
restaurants, front desks and parking garages at 250 hotels worldwide with information about guests exposed but they don't know how many were affected. the u.s. government wants to speed up the wall a lot of self driving cars. in the next six months, regulators will issue new guidelines on how the cars should be tested and when they will be allowed on the road. the government will make $4 to fundin funds to -- the products. mark: thank you. most households operate in cash. one financial service company is working to change that. let's bring in erik schatzker. you have been in bangladesh. erik: it is true. the point is to show there is a new type of philanthropy in the world and not about giving money away but investing in technologies that improve the lives of poor people. bill gates is huge on it and he
company ind on this bangladesh and that is why i went there, to have a look. capital of bangladesh is home to poverty, and this , andic -- endless traffic one of the fastest-growing financial services in the world. it is called bkash. setting up a bkash is free. all you need is a mobile phone .nd 100 million bangladesh and electronicle payments are excessively affordable, and that is why the bill gates foundation is a bkash investor. thinking this cheap can change lives in the country this poor. fundamentals more than i realized, and there have been attempts with finance cooperatives, but the
transaction fees were too high. until we get those services down with no fees onto the cell phone, then banking will ultimately be for those who are better off. erik: the ceo and his brother founded bkash in 2011. they had $5 million. profits of a previous start up and a plan. >> this country has a $2 billion economy right now on the country was growing, so it is not that it is charity, it is economic opportunity. erik: from 2 million accounts at the end of the first full year, usage has exploded to 17 million and counting. workers who used to take time off or hire agents to carry cash back to the villages cannot fire it instantly with a few keystrokes. rebecca works in quality control at this t-shirt factory in dock.
she makes about $85 a month. bkash is not just for money transfer, it is a payroll system, a mobile wallet and a savings account, all-digital and affordable and regulated by the central bank. do you worry at all about monopolies of? ofsh is the fastest-growing the mobile service providers. >> that is why we have given about 28 licenses to the 20th banks. we want a few more to come up, but it is the kind of handholding. isk: on the streets, bkash everywhere. the company has more than 100,000 agents across the country and withdrawals is how they make money, they cost 1.85%.
gates foundation initially saw bkash as a case for charity and gave it a grant. in 2014, it became an investor. >> i think it is our best investment. there is a clear alignment between the success of the business and the goals of the foundation in terms of reaching more people. we are not going to reach the number of people here by giving away money. could put money behind this great catch up in a wreck with a great idea and business plan, and our ability to reach more people is dramatically different. happen often.not a company improving life for the poor and drawing praise philanthropist will make you money at the same time. bkash turned a profit in 2014. now, they have bigger ambitions. loans, insurance, maybe international expansion. on the middleman and somebody will be seeing it
in the world, so that is the most powerful thing happening here. we are just seen people diverge. erik: here is what i think. stephanie: i think you look great in that turquoise top. erik: this is the true promise of financial technology. the guy who ran paypal to american express, how we can bring banking to the on banks by using technology to reduce costs, that is exhibit a. there were people who would take days off of work to travel back to their village, carrying bundles of cash, to give to relatives and now they can wire it with a few keystrokes. there are other things. whether it is insurance, loans, the cost of transaction and providing the service will drop to the point where the poor, people who are indigent, cannot afford this.
it will change industries. theay not happen here, but forefront is places like bangladesh. the larger point you make -- david: we tend to focus on the smartphone explosion and the matter of apple and other manufactures, but there are secondary and tertiary effects. erik: yes. it will take a little while to see how powerful the trend is and how sweeping at the cons. based on what i see, i think it is unstoppable. stephanie: extraordinary. i love it. erik schatzker from england -- -- from bangladesh in new york city. we will cover a yearbook game because it is friday. your first clue -- jon ferro has never played -- this handsome young man graduated in the class of 1984 from harsh greeley high school in new york. he ended up at harvard where he was cocaptain of the rowing
team. i know exactly who that is. it took me a second. i did not know he was from there. us your answer. erik, you know. i will give you clues throughout the next 1.5 hours. we are going to talk about 2016 off to about start for companies, especially intel. we will have the latest on their earnings. ♪
in the mix, intel. shares are down as much as 6% following the tech companies latest earning profit margins compressing. what i week seen following their stock? -- what are we seeing? stock in the red. what is going on with intel? intel is going to the transformation. they have been a pc have the company and it is moving to becoming a data centered company. in the fourth quarter, we had the ability for the data center business to offset some of the is a mixed bag and we are starting to see the start to be a that we saw in --5 and pcs unable to become be overcome. david: it is what they said about the first quarter of this year that brought the margin, that stephanie referred to, and revenues overall. anand: one of the thing is that q1 tends to be softer, a weaker
china, weaker macro factors, and a byproducthings of of becoming a data centered company, you have public guys, amazon, facebook, google and they are buying tips, so there is weakness there. you put all of that into the hopper, and you get a weaker q1 profile relative to expectations. jon: i want to talk about that because in a look at these companies with futures down 250 points, i am looking for the message in the bottle. what does it tell me about global demand? separate the forest from the trees, this earnings on intel was not as bad. i think expectations got ahead of themselves and on a relative basis, transformation is important. yes, there are moving things on a demand perspective, but in the longer term, out of position is
important. i think people should focus on the fact that it is a data center had the company and -- stephanie: how much time do give them? anand: they have said that the data center should grow at 15% revenue over the next years, so we are down 10%, but data centers are growing 18%, a pretty big deal. stephanie: thank you so much. we just broke down intel. shares down 6%. he will have more when we return. earnings coming mt. from wells fargo -- earnings coming out from wells fargo and citibank. you are watching "bloomberg ." ♪ ♪ we live in a pick and choose world.
save $1100 on the i8 mattress with purchase of sleepiq technology and flexfit3 adjustable base. ends monday. know better sleep with sleep number. stephanie: breaking news on two of the nation's biggest banks. we are about to get fourth-quarter earnings from wells fargo and citigroup. morese stocks are down and
than 20% from their december high. we will be asking steve ratner on what investors should be doing. did holiday wishes come true for retailers? we will be getting the sales figures. welcome to the second hour of "bloomberg ." we have citi and wells fargo earnings out. i am stephanie ruhle. david: i am david westin. we went to go to erik schatzker. erik: we are looking at citigroup and on the top line, we see what appears to be a b. the dollar .6 in earnings and $1.06 in earnings as
opposed to $1.05. they grew revenue and this appears to be the story of citigroup earnings. there is a lot more work to be done. expense management critical, so in revenue, an increase of 3% year over year. in a no growth environment with the global economy as we know that is challenged, citigroup manages to increase revenue. how did they do it? i don't have a good answer yet but i need to go deeper into the numbers. expense management another issue. it played up favorably at j.p. morgan and the reduced expenses by $400 million in the fourth quarter. in citigroup's case, not a great story. it looks good on a year-over-year basis, but quarter over quarter, expenses rose by some or hundred million dollars. almost by the same number jpmorgan was able to bring it down and citigroup's expenses rose.
there is a lot more to be told in the story. for example, the interest of income, how much the makeup men did, and the impact of the fed rate hike or the anticipation? i will look through that and wells fargo reporting that it is a one penny beat, $1.03 versus the estimate of one point $02. i am looking at it for the first time, so i can't say what the revenue story is. let me do that and i will get back to you in a couple of minutes once i'd a deeper. stephanie: for more, i went to bring in steve ratner and our own finance editor christine. expenses.start with citigroup expenses are up. anyone used the two would say it is all they are focused on, especially because they were announced. christine: i will be interested to see where that goes. a goodes when you have
revenue in investment banking, that can lead to higher compensation because they try to make it part of the compensation as a percentage of revenue. i would be curious to see what is driving that. i am curious in the revenue of how much is coming from sales of assets on citi holdings and that is not considered high quality. revenueis where the data is coming from, that might be a disappointment for some investors. jon: it was very much about expense management. the sixth biggest banks in the united states have expenses with the lowest since 2008 and that was the anticipation, but what is surprising is what is happy with revenue. jpmorgan, revenue was better than the estimate. steve: on the expense side, there are a lot of pieces to look at, especially at the end of the year with reversals and things like that.
on the revenue side, we probably have to take deeper, but on this country, business is not terrible, not great, but not terrible. there was a little grossed out there, and the banks should be able to get some benefit. weistine: one other thing will be looking at in the newsroom is what is happening to assets at these companies. we know wells fargo has been growing and they have been acquiring companies, so they are growing in terms of assets. cciti has been shrinking, selling things out of their non-core portfolio. stephanie: if you look at city, they had whole lot that did not relate or was not associated to the core business so it makes sense. christine: after the financial crisis, they had to get smaller and they are doing that. that is their big focus. wells fargo was a good shape and they brought walkover via and getting bigger all the time, so there is a different projector hovia -- wachovia,
and getting bigger all the time, so there is a different project. regulatoryuse of constraints, the question is, can they go other parts of their business to make it up? if revenue is increasing, that might suggest they are managing growth. steve: it might, but i don't think we should overstate or understate because banking is a tough business right now. yes, the u.s. is doing ok, europe nearly growing, but we all know that there are a lot of weak economies around the world and the regulatory environment is brutal. smaller bank yesterday, really small, so far from being systematically important, but the regulators are all over them and they look at everything, check capital, watch the loans, watch on growth
, all the stuff. christine: and small banks to not have the resources to hire more and more officers. stephanie: we hear that all the time. steve: on the other hand, jpmorgan spends all the time worrying about compliance and it is a really tough time to be a bank. you.christine, thank that is the brakes on a bank earnings. we want to get you up to date on the markets. we are waiting on dow jones futures, s&p 500 futures negative. down by 1.7%. if you switch up the board, have a look at the commodity market with the big headline, food at $20 a handle again. steve, we have to talk about this market environment. how did these investment banks handle this at a time when everyone is saying high rates is good? be difficult to
manage at the same time. steve: it is a tricky period. it is a strange world in which everything seems to be driven by what happens in china overnight and then it flows from that. an inflection point, therefore, we don't really know what the future holds for the banks. we can all have opinions, but there is a lot of conflicting signals when you look at the different markets and things to measure by. jon: in a day to day job to present fault, how do you manage this backdrop? steve: my day-to-day job is to increase wealth and not manage. [laughter] we try to do both. , i do not market timers know anyone who is a market timer successfully, it is almost an impossible job. warren buffett has always said -- are anie: unless you psychic.
steve: unless you are smarter than i am. upside at things like capture and downside capture. in other words, if we can preserve some capital, not all of it, but some of it on the downside and outperform on the upside over time, you have a good outcome. you do not want to be too far in front right now. that is key. david: where are you long and short? don't mean that literally, but if you look at the longer-term -- again, we don't move exposures around. we do take some off in the middle of december, which turned out to be a reasonably good decision and we have plenty of bad. we are quite constructive on the u.s., quite constructive on china, which i know is controversial and we can debate. quite negative on the rest of the emerging markets and a little of an exception for india and not excited about europe. david: what about japan?
steve: we are still pretty excited about japan. the economy itself might not be doing great, but the companies -- there is improvement going on a corporate governance, management, profitability, things like that. stephanie: i want to point out these are long-term views. anybody watching tomorrow and say, i guess you are wrong on china, but you are expressing these views not as they relate to the market today or tomorrow. steve: i have no idea what the markets will do. stephanie: i went to point that out. julie, i want to talk about what has been working. the haven, things are people feel more safe. julie: where they -- whether they are is up for debate. oil has gone down. a similarg to be chart around the world, but you look at treasuries, cold, the japanese yen, they have held steady in 2016. we have heard some strategists who have said, you want to allocate some holdings to cash
or short-term treasuries to places where you will not get a huge return on your money, but you do have that capital preservation we talked about. what kind of allocation, i know you are the longer term, but what allocation are you putting toward the safer stuff? steve: it depends on your investment objections, risk .olerance at your stage of life for someone relatively younger and trying to manage money for a retirement that is decades away, equities,o be in relatively invested, and you want to stay there. if you are closer to retirement, you should have a reasonable amount of cash because who knows what will happen in the market. there is no one size it's all -- fits all. jon: i'm going through the citi earnings, and they are talking reserves related to their energy portfolio and we saw this with jpmorgan. exposure to the oil market, you
want to get people to understand the complexity at the moment because the easy thing to say is this is good for the u.s. economy but it is more complex. steve: it is. on a net cases, it is good for the u.s. economy because we imported a lot of oil and that lowers the cost of imports. it is creating havoc in the oil market. i don't think anyone has expected or maybe seeing a decline of this speed and this magnitude. there is nobody i know in the oil business who arrange their business around this prospect. hedgeart ent guys do their output for a year or two, part of it or all of the, so they do have some hedges in place, but nobody should be confused editorial stays at this level or any level like this, you will see a lot of bankruptcy, a lot of commotion in the oil patch. stephanie: you are mentioning that more people feel it is ok
to sit in cash. do you see that today more than ever? after years ago, no one sat in cash. wereressure investors felt giving you to and 20 on needing to be in the market. is it more acceptable to be holding cash now? steve: at the end of the day, it depends on if you are right or not. because investors are so unforgiving at the moment, there is a more conservative bias and how a lot of the hedge fund folks are managing portfolios because they know, or they think, if they have a big decline in the by of what they own, they will get redemption. they are hugging the ball and trying to make sure they do not fumble. stephanie: look at the global market, they are getting crushed . u.s. stock futures are down. i cannot even find an asset class --
jon: good morning. what a morning for markets. about one hour and 15 minutes away with the futures down. s&p 500 futures that -35.7 out futures low this morning, -299 points on the screen. down by 1.8%. the best performer in the s&p 500 this week, chipotle mexican grill. stephanie: that is amazing. in pretrade 2.49% this morning, but up so far this week. has a turned a corner since they collect scandal -- since the e. coli scandal? stephanie: we're going to talk to pull it, but other stocks out there. a few minutes ago, we got citi an dwd wells. they both be what we are already
seeing both stocks trading down one dollar because if you look at it in areas where they are making money, there is not an idea that will be long-term. as christine pointed out, thanks like citigroup are selling assets and they will get the positive upside of that. david: it is hard to be up with the whole market is down. that, the stocks are down. even if you do the earnings. we will talk about the stock actually up. i find this unbelievable. everyone was talking about this company. if you want lunch, and fast, go there. stephanie: also a great weight loss plan because you will get sick. >> the biggest game they have had for that today period and i was two years, so they were down in orlando and they made a presentation and said that they could recover.
it was not groundbreaking in the presentation and one person said there was no new bad news. they were down 25% to the end of last week so there is room to climb. stephanie: that is it for putting it into perspective, so where are they coming from? craig: the all-time high was back in august and it slid 45%, so they were basically saying this is a one off thing, one batch of ingredients that did the damage and we are going to be back, so they gave optimism to investors who have been hammered. stephanie: do you think they can turn it around? even if they do get approval and people say, it is safe and clean, we do have lunch there? david: yes. -- craig: yes. david: no, i'm not sure i would. stephanie: i am a no. jon: can they change the reputation or turn it around? they said this week that
it will be a messy year. it will be a bad year and customers will stay away, but they think by 2017, customers and the margins will be back. david: i'm hesitant to that point. i do not will do not ever, but i don't feel they have done enough to prove they had changed their ways. craig: the cdc has not come not to say it is all clear and that potentiallyative out there. and so they get closer -- what they said was in the middle of february, they assume the cbc will come out and tell customers what happened and that will hopefully move beyond, but i think there are still negatives thinking out there. stephanie: take us to twitter. atie: the eye of the price $26 and we are well below that thus far,about 18% but it has been a terrible year for twitter. it came out late april and they cut the sales forecast and dick
costolo stepped down in june. at that point, jack dorsey was the interim ceo and they said because he is running square, we will not name him ceo of twitter and that was not true. gave precaution on growth and said, we are never going to be a mass product and we will likely be and each product. it will take quite -- niche product. it will take quite some time. jacks did decline since dorsey was named ceo, and there was a little bit, but there is negative commentary as of late about user engagement and about whether they are sticky, if you will, to they have appealed? even to the existing user base. there is a lot of question about the company and it goes back to some of jack dorsey's commentary and the caution it to investors that it will take time. investors have not been patient. stephanie: what is funny about the criticism on it jack dorsey
could run both companies -- there are ceos that run much bigger conglomerates with different divisions later than twitter and square. i am not sure why we continue to criticize or question if jack can do the job. there are a lot of ceos to look at. david: and to pull this together with chipotle on twitter, i find it hard as the consumer to go for the product. next, we are talking with goldman sachs. thank you for joining us. that is coming up next on "bloomberg ." ♪ -- ♪
is still with us. please, take us with this. and out go down to $20 they are say they will go to a bull market before the year is out. vince: good morning. very bearish sentiment out there. wti is how much worse can it get, but can't investors make these decisions better or worse? the fact remains that we have a global imbalance out there. we have inventories in this week's print that are roughly 37% above the five-year average. if we take a look at what happened last year from january through the month of april, inventories built by another 100 million barrels. these imbalances are quite loose. i have mentioned this many times before. there is a lot of went to chop for we can see -- wood to chop
before he can see that tiny not. weakening over the last several and we do have some demand that has been pulled forward, but we still have resilient supplying the u.s. they talk about this throughout bi and the remains a wide demand and -- jon: i went to pick up on that and go across to julie because they have been commenting on price. we can work out what that big bull market looks like. it is the readjustment of fundamentals. julie: they are saying that this oil price decline has put so much pressure on producers and we have seen this collapse in the weekly rig count. it has gone down, but the that it still has not put much of a dent in inventory numbers. here is where we are seasonally adjusted this year for inventory versus the past five years.
the question everyone has been asking is, when does the production move down enough to put a dent in the number? goldman is saying it could begin by the end of the year. stephanie: is dad is the question, if you were in your position, steve, are you answer it? steve: i will answer it. lower oil -- the lower oil is not, the higher it will be later and the more it will distort capital product, rig counts, all this stuff that will go down. you will not see this in inventories for a good while. being producedil the more people are using, so it will take time. stephanie: we are out of it, and we will be back in a bit with retail sales. ♪
points on dow futures. -34 on s&p futures. ahead of retail sales, i want to check on crude which is not there. ti trading at 29. 49. let's transfer to julie hyman as retail sales come out. julie: retail sales coming out in line with estimates with a negative .10%. we did see a revision for december higher. still overall, this is the prime holiday season. you are seeing a decline of .1%. you take out oil and gas, you get a flat number. overall, not seeing a lot of growth in the retail sector. i'm also looking at the producer price index. itt number for december, looks like the headline number %. -.02
you are seeing benign inflation to say the least. the entire manufacturing number is an eye-popping number. why would new york manufacturing be important? we have paid a lot of attention to the deterioration in manufacturing numbers. we have a -19 read. -4 was the average estimate. we are getting a revision to -6 for january. retail inflation not a big surprise. the manufacturing numbers are catching my eye. lower taking a tiny leg in the futures in what has already been a selloff kind of morning. jon: thanks. i want to draw your attention to the fx market. a very slight pop up in the euro-dollar. the euro now around .7%.
interesting move in the treasury market. are 2% flat on the u.s. 10-year. interesting moves across assets. you have crude down hard by 5.87% to 29.37. a weaker dollar, lower commodity prices means treasuries are coming down. also, for a rate hike in march, 22%. stephanie: we are following bank earnings. what i like to look at is citi, once considered the top bank, and wells fargo considering is behindlla, citi wells fargo. down becauseing broader markets are down, but profits rose, revenues rose. they are preparing for a more volatile market. i want to bring in erik schatzker who has been digging
through these numbers. whether you are talking citi or j.p. morgan, really stockpiling reserves getting ahead of loan losses. erik: that underscores the tale of two banks. you nailed it, the idea that citigroup has been supplanted by wells fargo. credit quality is a big concern. we saw j.p. morgan take additional reserves for the fallout from louisville -- low oil prices. citigroup doing the same thing in its wholesale bank. buildillion of reserve for the potential for those loans to oil and gas companies to go bad. $550 million total. a $550 million total reserve build at citigroup versus no reserve build at wells fargo. it is not as if wells fargo does not lend to energy companies. it has a different business. it is a consumer focused bank. american-focused on
big banks on wall street. citigroup the most international. the divergence continues if you look at the r.o.e. r.o.e. at 12% for wells fargo. citigroup less than half that at 5.9%. the way we look at banks in terms of investing from a shareholder's perspective, citigroup used to sit on top like deutsche bank because they were in so many businesses and took on so much risk. people liked that maiden lane trade years ago. things have changed. we are looking at banks like utilities and shareholders want banks with more visibility to behave like utility. and that is wells fargo. erik: the reality is whether it is citigroup or j.p. morgan or bank of america, the investment bank is still important. citigroup still has a sizable trading operation. in the fourth quarter, it
generated more fixed income trading revenue, if you can believe it, then j.p. morgan. the big problem for citigroup's equity revenue. it is down 29%. 39% quarter over quarter. while j.p. morgan's revenue is in the $1 billion neighborhood, citigroup is now in the $600 million neighborhood. equities is where everybody has been going because it is increasingly electronic. it does not require as many people, cheaper to operate, higher-margin with volumes. that is a question mark for investors. david: thanks very much. we will see you later on. bloomberg spoke with howard davies today who gave his take on when this shock and awe in markets might end. howard: i don't think it is going to end soon because i think there are still fought lines in the world it --
faultlines in the world economy not corrected since the crisis. the biggest one, the amount of debt. from thebeen shifted private to the public sector. not much deleveraging has occurred. david: you are responsible for deciding how to invest a fair amount of bloomberg family money> i'm rereading "the intelligent investor." steve: to takee -- warren buffett's phrase, be greedy when others are fearful. david: who do you think it's overly pessimistic? where are there opportunities? steve: i think china is an interesting situation. the markets, people have lost confidence in the markets with good reason. the chinese do not seem to know how to operate markets. there are plenty of problems in
the chinese economy, but i think when you cut through it all, china is still growing at a reasonable rate. i think there are still a lot of good things happening in that country. i would bet they will work their way through it and do well to investors. david: there was an interesting piece in the "wall street journal" today that suggested china is purposefully confusing people when it comes to the foreign exchange market. they don't want people to know what is going on because they need to devalue the yuan over time and punish people going short. steve: i think there is no question about that. they have been intervening in the forward market to upset pages -- hedges and make it harder to hedge. even the chinese central bank probably cannot win a battle over foreign exchange with speculators. when i talk about markets, i was referring more to equity markets where the chinese do not seem to know how to manage them. this lockout were big
shareholders could not sell for months. if you want to have a modern capital market, you have to do it differently. people will not invest in markets like these. jon: define your client and ask you to explain this. every time crude goes lower, equity futures seem to go with it. i have crude down by 5.3%. what is going on? steve: people are looking at the crude oil market as a signal of the economic health of the world. it is that simple. supply and demand balance has to up.r for price to go when you see the crude price going down, people are worried about iran coming back. the overarching question when you see all commodities collapsing like this, it is because the commodity markets are worried about global growth. jon: breaking headline in the treasury market. the 10-year yield back at 2%.
can the treasury curve what is happening? yields are lower despite the fed making a move. the treasury 10-year yield back below 10% for the first time. steve: larry summers may be right, that we are in secular stagnation or worse or maybe a little bit better. but we are not in robust growth for any country. that is what all this stuff is telling you. i was thinking before when we were talking, interesting hypothetical question if the fed had a do over for what they did in december given what we are seeing in january. david: larry said they were so committed at that point, they did not have a choice. steve: i agree. but i think as economic policy, it would have been better to go the other way. stephanie: do you believe infrastructure spending could be a big driver to get us out of this? many say it is a drop in the bucket.
steve: i'm not sure big driver is the words i would use. it is kind of a no-brainer that you can borrow money for 30 years at a little over 3% and invest in projects that should have a conservative high rate of return. that is what we should be doing. david: go back to oil and the equity markets. is that an opportunity? what is driving oil is the supply question, not a demand question. i understand people are using it as a surrogate for global growth. but the problem is a supply problem. steve: it is a little bit of both. if china were growing faster than it seems to be, they would be using more oil. it is true all over the world. demand has been weaker than anybody expected. then you have a supply problem overhang and the fears of iran coming back. i would say it is true throughout the commodity complex. look at any commodity, and it is all signaling a very weak
economic environment. stephanie: fears across the board, across asset classes. is there any focus concern around what the fallout could be the presidential election? does the election play any role today in the uncertainty we are seeing in the markets? steve: i think it probably does in the sense that hillary clinton has done a thoughtful, honest job of identifying where she is a supporter of what this president has done and where she might have done things differently. anetheless, we have had democratic president for almost eight years. the country will to some degree be voting based on how good they feel about the situation come this november. david: we should disclose you are a supporter of hillary clinton. jon: the market is voting on whether the fed will move in march. they are voting one way it seems. the front end of the two-year is down. , 25.8%.s futures
steve: i agree with what larry said, that the fed had gotten to the point where they had to move. they also committed there will be a gradual normalization. they've not committed to do anything in march. i think they have freedom of movement around march. i think the market is saying what you say the market is seeing -- saying. stephanie: if they don't move in march, do they have to take action when the next turn comes around? steve: they are back in the box of november and december. the pressure does ratchet up. at the end of the day, they have to do what is right for the economy even if it means a bit of a credibility issue for itself. david: if you look at the march, 26%es, 22% in in april. the possibility of a cut is going up. steve: i would take the under on that. stephanie: what do investors
want more? they fundamentally strong economy so she would raise rates or have they become so addicted to the heroin of having central bank easing an invention that they are happier in those times? steve: i think we would all be happier with a decent rate of growth and normalization of interest rates. i think we would all sleep better feeling the world is back to some kind of normalcy. i don't think anybody likes the idea you have to cut rates to zero to keep the economy from going into recession. stephanie: investors have loved the safety net of mario draghi. steve: whatever, fine. i think at the end of the day, companies have to produce earnings. they need economic growth to do that. for that, you need normalization. stephanie: steve, thank you. we have a lot more to cover. when we come back, retail sales. those numbers are out. we will see what stores are looking good. ♪
income. yield lower, much lower across the board, down by eight basis points on the 10-year. below 2% earlier for the first time since october. down by seven basis points, 0.82%. afterof this exacerbated the u.s. retail sales as well. julie: retail sales numbers, wholesale inflation very benign. we want to focus on the weaker than expected retail number versus economists' estimates. we turn to our morning meeting with mark. he will discuss his top retail picks for 2016. he is more on the staples side of the equation. when you look at the retail sales numbers, i'm curious your take overall on the number as it relates to your sector. when you're looking at the staples retailers? >> things are squishy on the retail food side. one of the themes we are
starting to see in the last week has been deflation creeping into the grocery retail numbers. we heard deflation, it's out of deflatione heard comments out of cosco and the food distributor. julie: you're seeing commodity prices decline. the reason these food companies, grocery stores, don't have pricing power, is it because they are under pressure from consumers as well? in theory, if they have pricing power, they could keep the gap and collect a bigger margin. are they under pressure from customers to lower prices? mark: it is a fierce market in the grocery space. grocers are quick to drop prices when they get a cost decreased to them. what is happening is a commodity swing related to meat. meat prices are down in the double digits. grocers are quick to pass that on to consumers.
i think that is what is playing out in the market. it is not customers forcing the price down. i think this is a commodity driven story. julie: we have to leave it there. we are seeing acceleration in selling. mark talking about grocery store companies. we are seeing the selloff accelerate. we see features take another led lower. stephanie: we are down over 400. we are just a few weeks into the year. we started the year and have the down first day of trading. first-dayave a down trading of trading of the year, that leads to the first week, month, more investors are saying i'm sitting in cash because i am so concerned. can we talk about market sentiment, steve? when we have a your start like this, how difficult is it to get a momentum shift, to be the big investor who says i will catch the falling knife? steve: there is incredible negative sentiment around the market. even after a good day like
yesterday, you see how fast it can reverse. people are seeing to -- choosing to see the problems, whatever your favorite bugaboo is everyone is focused on. that said, markets go up and down. they can turn when you least expect it. they can turn and go the other way. i'm not in the business of protecting markets. but i would not be shocked to say they go up at some point. jon: recent history examples again and again. when stocks are doing what they are doing, the fed would typically talk them higher. build effie -- build effie -- bill duffy has come out and done what not many do. they have made this shift from targeting asset prices to doing something else. it is significant, isn't it?
steve: i think a couple of things. writ tryt is premature to to read the tea leaves on why members are or are not coming out. we are 15 days into the new year. we have had a correction. this is not 2008. secondly, i am not sure i agree with marty feldstein. i'm not sure the fed was targeting asset prices. i think the fed was trying to do what they said they were trying to do, to have inflation in a 2% band to get unemployment as low as possible consistent with that inflation rate. that is what they were trying to do. in their wisdom, they felt they had to raise rates in december. i think that is what they are doing, no more, no less. i think they are trying to bring this plane into a smooth landing where growth stays at were above 2% and inflation gets back to 2% but hopefully not above. stephanie: more data we are getting, the more numbers we
look at, we are getting negative news. we are down over 420. retail sales numbers were out earlier. we are joined by shannon pettypiece. we were so focused on these numbers toward the end of last year. these numbers are bad, really bad. this is not just back from macy's and target. it is telling us what is happening with consumers. shannon: exactly. everyone kept telling me they are saving gas money for the end of the year, they will go big at the holiday. they will go big in december. we look at these numbers and basically no increase from november to december. year-over-year, only a 2% increase. most of that is driven by otto's -- autos. consumers are not spending. they are not spending. bigonly area up
year-over-year was sporting goods, music, and books. that was up 7%. retail is flat when you break out autos. it is not a pretty picture. thehanie: nike wins and rest lose. can we be positive on the u.s. the more we get back numbers? is it a positive comparatively speaking? steve: i don't want to become the house optimist. stephanie: that is my job. steve: i think what that on at the end of the year, you had a big shift to off-line from online. looking at the off-line retailers is not a great picture of anything. they have their own issues. as a whole, retail sales are flat. consumers have been deciding to save more. the personalt income numbers and wage numbers, they are getting better, which is exactly what the fed was hoping would happen. it is not that consumers' wages are going down.
it is they are choosing to save more. why i am not sure, that is what seems to be happening. shannon: one other factor could be discounting. if everything is 40% off, consumers might be able to get what they need and don't have to pay more. you are able to get a gift for every one of your aunts, it cost 20% less because of discounting. we are talking about the big economy. it banana republic is discounting, i don't know how much that is a factor. steve: in terms of what kind of retail? stephanie: positive environment for consumers, but we no longer spend the way we did. david: this reminds me of what we had with corporate earnings not spending and investing. we now have a substantial gas dividend yard the increase in salaries. there are indications that is going to savings.
how do you bring that money off the sidelines? steve: that is a great question. i don't even know why it is on the sidelines, so i'm not sure know how to get it off the sidelines. the money stayed on the sidelines in the corporate sector because c.e.o.'s said we don't see investment corporation to earn the rate of return we want, so we will not spend it. consumers, it is a different equation. they're looking ahead to manage their finances. and how anxious they are about the future. steve: why they decided to save the gas dividend, i am not sure. but that is what is going on. shannon: maybe they're spending more on health care, the rising cost of health care and housing. a lot of competition. we are looking at the retail, consumer food services, auto numbers. jon: we are about 35 minutes away from the opening session in new york city. there are the retailers
pretrade. 46 points.&p 500 - we are off the lows. that tells you how bad it was five minutes ago. let's switch up the board quickly and go through the crude market. 70, alsoat 29. creeping off the lows. -4.78% move this morning. you see it in treasuries as well. big moves this morning. stephanie: for those who wanted to buy on weakness, it is only getting weaker. you, steve rattner and shannon pettypiece. we will be back with more. ♪
is rounding out his last day in new york in grand fashion. jon: stocks have not even started trading in new york city. we will break it down with the global chief investment officer a. check out the features. negative across the board. down on futures. crude lower by 5%. 29 .63 on my screen this morning. julie hyman, big news all over again. julie: it is resumption of the selling. yesterday, a we had the one-day pop. it did not feel like it was a change in sentiment. there was no fundamental change in sentiment. now we see sentiment remains poor. we have been watching oil continuing its slide, down below $30 a barrel.
since the lowest november of 2003. will earnings be the white knight to save the day? if you look at the colonies that have reported earnings, it does not look like it. citigroup coming out with earnings that beat estimates and wells fargo, beach by a penny apiece. they are seeing revenue rise. with citigroup, it is an increase in investment banking and asset sales. that may be one of the reasons we are seeing some investors discount that, either that or the sentiment is so poor that was good news for stocks still decline. intel did come out with a disappointing forecast. they said asian business is not going well. overall, look at the index we showed earlier. this is a citigroup index of the number of profit estimate downgrades, cuts by analysts versus increases.
we are seeing the highest number of cuts versus increases going back to 2009. it shows you the profit sentiment is also very poor. we have to look at the 10-year. we are in a rising interest rate environment, an incredible thing when you look at the 10-year yield. it didn't below 2% -- it dipped below 2% earlier this morning. it is coming up a little bit. this is not a yield that looks like a rising interest rate environment. jon: i think that is the point this morning. julie hyman, thank you very much. a big headline in global equity markets overnight. chinese stocks back in a bear market for the second time in seven months. just a matter of weeks to create that bear market. despite an unprecedented rescue effort from the chinese government, the index falling another 3.5% overnight. see negativend
headlines, it is hard to take the other side of the trade. steve: i would not argue with howard. he is a smart man. sentiment is really bad. the problem in china, what we are learning is trying to artificially sustained prices is not possible. the market will always win. when you see interest rates, overnight rates in hong kong up as high as 60%, they are telling you the currency is in trouble. they have been slowed to let the d -- we are in the endgame, but something cataclysmic is going to happen. we are going to have a crisis. eventually, this is all going to come down. stephanie: is that is what they are telling us, what does that tell you to do? >> first, it tells you all risk assets are going to come under pressure. loans, high-yield bank
things like that, are going to be under pressure. it is hard to argue now given how much high-yield has sold off that you should not start putting money to work. i always remind people nobody perfectly picks these turning points. those asset categories are cheap enough to start putting money to work. stephanie: howard says to find the sectors you like in figure out where you want to be. if you are higher up, you will avoid the pain beneath you. scott: i would agree with howard. sure somebodymake zell not be able to securiti or collateralize assets ahead of you. howard is an expert, so i would not argue. david: i want to move to the second story important to markets. u.s. retail sales came in a few minutes ago and declined in
december, raising concern about the momentum of consumers. we just got an announcement that walmart is closing 269 stores. stephanie: they are walmart express stores. it is not the major stores. it is the fast shopping outlets they created. it was one of their newer strategies. we heard from the c.e.o. a few months ago they are going to be in a phase of redesigning walmart. those express stores, one could make the argument this is them moving more online. they want to compete with amazon. if you are looking for a fast shopping outlet, getting next a shipping is the way you get that. david: i want to go to scott to talk about retail more generally. walmart has been trying strategies. some work, some don't. what does this tell us about the consumer? scott: on one side, you have
strong wage growth. you have strong employment growth. you see more people working, more people wanting to buy things. at the same time, retailers have too much capacity. import prices are falling. the only way you can lower -- lure the consumer in is with heavy discounting. december numbers are reflecting that. david: they are selling more charging less? scott: exactly. margins are under pressure. look at online sales. they are doing well. people can compare prices while standing in a walmart or best buy and get the lowest price. those prices are going down. good for consumers who get more stuff, bad for retailers. jon: we need to push back
against the consensus view for 12 months. that was the weakest year for retail sales in the u.s. since 2009. every single economist, almost every single economist would say $30 crude? i'm going long consumer and u.s. retail sales. how long do these guys have to be wrong before we say maybe something else is going on? scott: i think where they are wrong is the deflationary pressure. i don't think it is units of sales. look at car sales. they were at a federal record. prices are going down. as stephanie was saying, it is putting huge pressure on margins. i think retailing is a tough business to operate in when you have heavy discounting and so much competition, especially online. stephanie: it is black friday all year. 30 is to be a time when the only true sale date was the day after christmas -- there used to be a time when the only true sale day
was the day after christmas. i would like to see how many units macy's or walmart have sold. those numbers will be massive. the margin is not. shares of citigroup and wells fargo are down in premarket beatng after both banks fourth-quarter estimates. citi generated higher-than-expected revenue from investment banking and asset sales while wells fargo beat estimates with gains in interest revenue. if i'm president of citi, i'm putting my hands in the air. you win, you make your way over the finish line and still lose. saw, athere is the old great business but bad stock. given what is going on in the market, it is hard for anybody to fight these headwinds. vulnerabletocks look if you buy into this idea we could have a recession. let me say now i don't buy into
that. but the market is starting to think that way. jon: you go to something important. this morning, there is another seller. we have had two weeks of equities in the red. we have had commodity markets trade lower and markets taking you on the federal reserve. in march, i don't think you will be able to hike. the visit trade at the end of last year, it was go longer banks. do you think that will be there for them? scott: i don't expect this market turmoil to slow down. i think it is going to be very hard for the fed to consider raising rates if we are facing this environment. i think the probability of a rate hike, there's no chance in january. a march rate hike at this point i would put in the probability of 25% or less. i don't see a rate hike until late in the second quarter. jon: fed funds futures agree with you. we are at 29%.
march, don't move in what kind of signal does that send to the market, to the consumer? what does it say about the global economy? scott: it tells you the global economy is contracting. if you measure the global economy gdp in dollar terms, the global economy is in recession. people would say that is a product of dollar strength. but it is also a combination of week growth -- weak growth overseas. with deflationary pressures and weak global growth, there is no reason for the fed to have to consider raising rates. the risk in the long run we are going to create asset bubbles or other problems. is loath to consider the possibility of seeing the u.s. fall back into recession. i don't think they will do anything that would jeopardize that. david: those are the stories
s&p futures off by 47 point. crude is much lower this morning. -4.47%. if we go to treasuries, you see the story spreading from equities to commodities and in treasuries as well. yield lower. on two-year is 2% flat -- the 10-year rather. a move on the front and i want to speak about with lisa abramovitz. is front end of the curve saying you are not hiking in march. >> this is saying we don't believe you, fed. butonly do not believe you, we are going back to our traditional havens. the market is speaking for you. the market is telling you no . i think we are seeing a reversal, some capitulation.
anyone optimistic yields would rise that much more has been put in their place. you are not seeing them materialize in this market right now. jon: do you see this in credit, this kind of move? lisa: yes. if you look at the high-yield ats, shares are trading the lowest since 2009. there has been a massive drop. you are seeing a big concern. david: when you can go to breaking numbers on industrial production. julie: industrial production in december double the drop estimated. capacity utilization at 76.5%, roughly in line with what analysts were estimating. we have to dig into the numbers to see where the decline was coming from. was it coming from manufacturing? i'm seeing manufacturing down .1%. the big drop was from utilities as expected. you have to blame that on the weather as we saw a warmer than usual december.
utilities a big part of that number. we earlier got the empire manufacturing number that was much weaker than estimates, so that does point to weakness in the manufacturing sector. .10%: if it was only down in manufacturing, you say there will not be a recession you think overall. but we are in a manufacturing recession. scott: absolutely. fortunately, we are a service economy and manufacturing has become a smaller component. a manufacturing recession has been going on for a while. i don't see it abating in the near term. stephanie: jon brought up what we are seeing in the credit markets. what we are seeing is bifurcation. you're seeing energy get smoked this morning. investors are still looking for yield. the sectors that are ok seem to be quiet if nothing else.
people are not necessarily buying, but they are holding tight. is that a surprise? scott: no. a huge part of the investor base for bank loans are collateralized loan obligations. managers are under pressure not to have energy exposure, so they have to go somewhere else. a lot of the money in high yield is shifting away from energy into other credit products. lisa: here is where that logic falls short for me. a lot of people say this is just a commodities related story. i don't buy it. d.c. retail struggling -- you see retail struggling. collapsed.nds have stephanie: maybe they got their ears pierced already. lisa: is also a technical aspect you have to look at. when retail investors see massive red marks on their
statements and hear about the sec investigating high-yield mutual funds because of concerns over liquidity? stephanie: the food deal this week blew it out so there is an appetite. lisa: it was investment-grade. those bonds have not treated well. david: people are using commodities as a marker for growth. sac commodities prices go down, it makes them nervous we don't have global growth. scott: the problem in energy and commodities is not a growth problem. it is a supply problem. you look at how fast output in oil rose in the u.s., we have a glut. output continues to grow around the world even though we have huge inventories. i think it is an energy story. but i think we are really looking at a deflation story. deflationary periods are good
for some industries and bad for others. we are seeing the spillover of deflation hurting retailers, hurting the commodities companies, hurting energy. but at the same time, we are seeing consumers have more discretionary income. they are buying services, things they can enjoy and live with. jon: you see that deflation trade in the bond market this morning with the yields lower on the 10-year and 30-year. futures down hard. i want to dig into the markets with julie hyman. julie: here is a stock that is up. it is not a usual suspect. wynn is trading higher despite the selloff in china. they said macau revenue will be sharply down. however, las vegas revenue is going to be higher.
it was about $368 million a year earlier. interesting trade. disney trading lower. downgraded to underweight at barclays. they're blaming it on espn again, that there is a risk with espn accounting for a disproportionate share of disney's cash flow according to barclays. we have seen a resumption in selling a stock that have done poorly. there have been questions about the deal going through. those shares down again. copper and gold are more than 70%. it is down again this morning by 8%. stephanie: scott minerd tells us it is not just an oil story, it is a deflation story. we are going to dig deeper into oil. oil falling tweet 12-year low -- oil falling to a 12-year low. we will be back in a few as we
david: welcome back. you are watching "bloomberg " at fourl down again point 87% after tumbling yesterday to a fresh 12-your low. andrew cosgrove joins us from our offices in new jersey. lisa abramowicz is still with us as is scott minerd. let's go to you in princeton. tell us what is going on in oil. andrew: you have seen oil selloff now that we have broken below the psychological $30 per barrel level. the acceleration to the downside continues. also from a technical perspective, people were watching that level. nothing fundamental has changed.
iran coming to the market, but more technical selling today. david: how are people reacting to goldman's call today? they say before the year is out, it could come back some. sense. it makes i would agree the lower we go, the quicker we rebalance or pull forward the process. what changes in the equation are operational shut-ins. you would not see that until we have breached the $20 per barrel level, mainly in canada. western canadian is already below that. level pressure is building. you damage underground reservoirs when you close projects. it is a game of chicken to see how long they hold out. jon: if your client has been on vacation and woke up and saw futures down 406 points, what would you tell them this was?
andrew: i would tell them this is a garden-variety bear market. this lookske 2008, 1998 where theor economy is fine but we are having a lot of market turbulence. they should expect there's probably more of this to come. stephanie: one thing we have not mentioned putting more pressure on causing volatility to equity option, expiration takes place today. those expire at the open. there's a lot of open interest at the 1900 strike. when we saw futures drop below that level, dealers had to sell putting more pressure on it because they had to hedge their books. there is another technical element pushing markets today. the calendar is not on our side. in the u.s., we only take one-week holidays. as a european, a two-week
holiday. jon: in london, you have to take a two-week vacation. there is something you learned this morning. ahead of the open, let's get a quick check of the markets. andrew and lisa, stay with us. futures are down hard. dow futures off by 414 points. -50 points. yield lower on treasuries, back towards the 2% level on the u.s. 10-year. a rough start to 2016. we will bring you the open next on "bloomberg " ♪
when you're on hold, your business is on hold. that's why comcast business doesn't leave you there. when you call, a small business expert will answer you in about 30 seconds. no annoying hold music. just a real person, real fast. whenever you need them. 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. jon: welcome back to "bloomberg " futures down hard. dow futures down by 428 points. crude lower. wti trading at 29.62.
it is a deflation trade. yields lower on treasuries. we are at 2.01% on the 10-year yield, down by eight races points -- eight basis points. as the market opens, scott, do you buy that open? scott: as an investor, i would say no. as a trader, you have an opportunity. i am paid to invest money so i would say no. stephanie: as a borrower, do i say i will rush to market because things are getting worse? scott: we have not seen spread widening. why would you not use the dip in rates to get a bond issue out? there's so much money sitting on the sidelines in corporate credit, pension funds and insurance companies, to go to work. this would be a beautiful day to bring a deal. digestingle are still
the deal. there is pain. prices were not doing hot. stephanie: that is their own fault. if you pad your order in the market goes down, this is your opportunity to buy more. if i was a bank of america salesperson, i would call every customer that moaned and groaned and say 99, all you want. i have no pity for them. lisa: i'm not saying have pity for them. [laughter] lisa: i'm not going to argue that. my point is, how many deals have to sour before people say we are getting indigestion? scott: for an insurance company like metlife, a big insurance company, they buy the bonds and put them away. they look for the next issue. these people have so much cash.
their production on the insurance side in the annuity business last year, there's so much cash sitting in the insurance companies that there seems to be an endless appetite. stephanie: your two flavors of investors. if you are a long-term investor, this could be the rit right time to buy. it is friday at head of a three-day weekend. people are afraid of what information we will get from overseas. you option expirations today. make investorsrs nervous. if you can have a long-term perspective, it could make sense. lisa: i'm wondering how many human traders there are on a day like today that are not computers or algorithms. how many want to try to trade this mess? scott: the hedge fund industry is largely not algorithms. those people are getting carried out now.
they don't have appetite to take on more risk. i don't think there are a lot of traders now who have the liquidity on hand to take a big position. stephanie: in the last couple of weeks, how much worse are the credit markets in terms of liquidity? we know how bad they were in december. are you feeling those effects? scott: it depends on the definition of liquidity. when you look at investment grade credit and demand, there's lots of liquidity for that. but if you want to trade a bond and call up bank of america or morgan stanley and bid on $100 million worth of bonds, it is like going to the donut shop. you pull your number and wait and they will get to you because they will try to find 70 take the bonds off your hands. it is an appointment market. stephanie: we saw them hiring more traders and saying we will
be more of the market maker flavor and absorb the risk. things are dramatic. no one is absorbing that risk. scott: over the last five years, the credit markets are probably double the size they were. the trading volume is down by 10 to 20%. lisa: how much more forced selling do you expect from hedge funds? scott: a lot. i think we have a number of people in the macro category who bought into credit or energy on the dip. i had people coming to meet when oil was at $60 a barrel telling and they a raving buy were loading up. there are other things like clo's coming under pressure because hedge funds bought them because they thought the high yields would protect them. david: julie, we have to get back to the markets.
the dow is down 360. julie: the nasdaq has been leading the decline. it was down 3% out of the gate this morning. we see the return of negative sentiment. i wanted to look at individual movers. we had big earnings reports this morning. citigroup and wells fargo both out with numbers. citigroup earnings beating by a penny a share. revenue rising in investment banking business. that is doing shares no good this morning. same for wells fargo. it also beat by a penny, so i 1% bump in the revenue number but shares are down by 3.4%. i have been watching market internals. one thing we have been looking at is how many stocks are advancing versus declining. we have seen that number goes to the lowest since december. more stocks declining been advancing, a ratio the highest since september. one of the other things we have been examining has been the
52-week highs versus lows. in can look at a spike 52-week selloffs. that was a one or two session event. this has now been lasting multiple sessions where we are seeing multiple lows versus highs. we have to look at the 10-year note. that is the other thing we have been watching this morning. it went below 2% at one point. money coming out of stocks. at least some is going into treasuries. let's go to abigail doolittle live from the nasdaq looking at intel, another company out with earnings. intel shares are down sharply this morning after the company reported a mixed fourth quarter and cut its first-quarter forecast on weak demand. the company is saying the new euros off to a slow start, especially in china.
this is the first of the big tech companies to report this year. it could set a negative tone not just for technology companies but on the global demand macro picture as well. stock hasel, that traded up and down in a volatile range over the last year and a half. so far, it has been unable to get out of its own way. stephanie: thank you, abigail doolittle. earlier, we mentioned headlines out of walmart. stores.their express this is not just bad for walmart shareholders. closing this pilot, that is 10,000 workers in the u.s. affected. 16,000 globally. that is a lot of people. david: there are a lot of people out of work. not going to have money to spend in retail. stephanie: this speaks to consumer sentiment. when you look at the u.s. economy, when you see investors across the country, what do you
think people feel? not just investors who have benefited from asset prices rising? scott: you have bifurcation. i had dinner with someone last night. the comment was i think i should probably take money off the table because i'm getting nervous. that is not panic. i'm starting to get nervous -- that is telling me we have not seen the bottom. when you get away from people like that into middle america, middle america is feeling pretty good. openings.eeing job job openings are at record highs. people feel like things are turning around and they are starting to have faith the economy is doing well. david: we have to get this right. walmart is saying 10,000 people. they will try to relocate in other stores as many as they can. it is a big number. out walmart point shares versus a price of oil.
here is oil. we know it has gone down, but so has walmart. there has been a lot of talk about people getting savings from lower gasoline prices, that that was going to benefit retailers. evenhas not materialized, for retailers you think would benefit the most like walmart. stephanie: one reason walmart should benefit is they have their own trucks. julie: that should be one reason it benefits. i find it interesting scott is talking about middle america maybe feels better also at a time when we are hearing a lot of the whole two americas argument. a lot of rhetoric during election season that people in middle america are unhappy, that they are not doing well economically. it is interesting that argument is being made. jon: we have a bear market in data again and dreadful out of the u.s. you mentioned earlier manufacturing in the u.s. is in recession. i was a global manufacturing is
in recession -- i would say global manufacturing is in recession. services ok. does that cap get resolved one way or the other? scott: i think it gets resolved in companies heavily manufacturing oriented and commodity-based. they are in for a hard time. we are seeing that. in a country like the united states where you have a huge service economy, exports are a very small part of what we do. we can withstand a manufacturing recession. it is not good for growth. we have 2% growth or something like that, but it seems to be something we have gotten used to living with. stephanie: even if within standard stand it here, could one make the argument we will see the gap widened between higher-quality industrials, financials, and commodity-based companies is where we will see the gap widened further.
scott: i tend to agree, but i also realize -- i was talking to someone yesterday. we are coming to the end of the energy story. i $29 a barrel for oil, remember when i first said $25 a year and a half ago and people thought i was crazy. now i am hearing people like a bidding race. who can come up with the lowest price? the bottom line is the energy cycle will at some point bottom out. you will get an and to the contractionary effects energy is having on the economy. if you get that to stabilize and other parts of the economy grow, the economy is not doing badly. jon: interesting you mentioned the economy. the u.s. economy is somewhat insulated. the s&p 500 not at all. this disconnect between the s&p , for consumerscs
it is big. can you separate those things? of stockout 2% appreciation or loss translates into actual consumption. it does have a drag on consumption. but it is not big enough to overwhelm the continued growth in wages and employment. stephanie: scott, you brought it up earlier. you mentioned clo's. loans are trading better than bonds. does that speak to the cap structure argument again? scott: i think so. the other interesting thing is the loan market has a much smaller percentage of credit in energy than the bond market. stephanie: wire? -- why? scott: i don't know why. but something on the order of 6% of all the credit in moses energy related. at the height of the market, we had 19% of all high-yield bonds
related to energy. you're seeing downward pressure in the junk bond market more than in the loan market. generally, loans typically have better covenants, higher in the cap structure. they are a safer place to play. lisa: they are more liquid. yg, the lowest since 2009, falling further. in a liquid instrument, you will get slammed more. if it does not trade as much, you will be insulated. stephanie: a year ago, he made a $25 call -- you made the $25 call. what signals were you looking at? scott: there were three things. supply and demand imbalance. supply was still growing and demand was not keeping up with it. the supply of oil in the
u.s. is starting to decline. we are starting to move in the right direction. the second thing was technicals. when we broke $80 on oil, i hate to think i am a chartist, but if you did the counts, you found $25 was a possible outcome. there was nothing that told me in the fundamentals with supply and demand until we saw some thing changes that we should ignore the technicals. the final thing is you really start to destroy supply when you get oil down below $30. we are starting to reach levels now where you are going to start shuttering production. a lot of people got themselves fooled. frackaid $60 to get a barrel of oil. it might be $60 on a total cost basis. but when you have the whole in the ground, the variable cost of lifting it is virtually nothing. producers continue to produce as
long as marginal cost remain below marginal revenues. stephanie: ignoring storage costs? scott: as long as somebody is willing to buy it at a price. lisa: how much leverage his left? how many hedge funds have to liquidate? how many credit lines are going to be drawn down by energy companies looking to pay off their debt? how is that going to reflect on banks? what are we going to see as far as the corollary effect of the drop in prices? as we know, it is not just a decline at what it does to force out the weakest hands. stephanie: it is not just about fundamentals. there's massive fear in the market. you mentioned the vix earlier. how many s&p stocks do you think are up on the day? take a guess. scott: 20? jon: 10. lisa: 15. david: 12. stephanie: eight.
there are clearly more than eight companies in the s&p that have strong earnings, but fear on a day like this. you have to factor in the technicals. it is taking the main stage, the focus. on the eight s&p stocks up on the morning? jon: we spoke to howard marks and he talked about the psychology of the market. when the market opened, i asked if you would buy it and the answer was no. someone has to come in big and the momentum turns. i wonder where is the point the pain translates into that. when is it? scott: i think it is when you see wholesale panic. the vix, we are still under 30. david: put it up again. this is important point you are making. this goes to howard marks' point. the vix is 26. even as recently as august, i
think it was close to 40. it has gone up. buts higher than i like it, it is not as far up as we have seen in recent times. stephanie: how do you define wholesale panic? to see a hugert surge in volatility because everybody is trying to get through the exits and pushing prices down just to get down -- out of the positions. we are not there. look at yesterday. i think people see this and come running to me saying it is a bull market. markets don't move in a straight line. comes down tothis there's still so much cash that needs to go somewhere, that is going to be a buffer. especially if you don't have a bank or big fund that will collapse, it will be hard to see how you get to the ball panic. last night, the gentleman
i was with is a sophisticated investor. he said i think i should start reducing exposure. that is not panic. stephanie: reducing exposure because he is down on the market or he wants to buy a month from now? scott: he thinks uncertainty is rising and things don't look as sure a bet as they were a month ago. take some profits and go home. jon: i'm going to take heat for asking this. qe ended at the end of 2014. what has the s&p done since then? scott: i would say it has gone virtually nowhere. jon: is there a story there? scott: the question i have tried to answer is with the end of qe, was it actually monetary tightening? the way the market is behaving, it is behaving as if the fed began tightening when qe ended. stephanie: we are going to take a break.
we talked earlier about walmart express pilots shutting down. i said it was going to affect 10,000 jobs in the u.s., 60,000 overseas. we do not know if those people will be laid off. as david mentioned, walmart will be looking for different places for them in the company. affected but not necessarily leaving the company. who is leaving the room? many investors. markets are down big. oil sliding. equities are down. only eight s&p companies up on the day. we will take a deep dive into high-yield and find out the best ideas in the short-term and long-term. this is "bloomberg " 10 minutes into the day of trading. ♪
jon: welcome back to "bloomberg " 22 minutes into the session in new york city. stocks down hard, dow jones off by 330 points. points,500 off by 36 1.88%. the headline in the commodity market, a 20-handle on crude. scott minerd has spoken all morning with us on "bloomberg " about a deflation trade. treasury yields lower. we are off by seven basis points on the 10-year. we broke 2% for the first time since october earlier this morning. we are down by five basis points at 0.84%. big moves in the treasury market all over again. stephanie: big moves in the treasury market. i want to talk about my favorite area, high-yield. bank of america saw this train wreck coming from a mile away
and forecasted a meltdown in december of 2014. not only do they see the pain continuing but for shadowing major economic risk. u.s.is the head of high-yield and leverage loan strategy at bank of america and the man who predicted the selloff. talk about the bifurcation. you guys brought the pinnacle food deal and it was beautiful. michael: there has absolutely been bifurcation in the market. high-quality deals will find a bed. insurance companies, pension funds need yields. there's a market for that and cash on the sidelines. that's not going away. having said that, anything with hair on it, we have seen triple c issuance plummet. stephanie: we say it is only oil. scott says it is a deflationary environment. what does that mean? michael: certainly not only oil. we have seen stress in metals,
media, tech, telecom. it is not only energy, metals, and mining. stephanie: what is a safe sector? michael: i don't know if there is one. if i had to invest high-yield, i would be long cash. cash will outperform high-yield. stephanie: how will you do business? if you are saying sit in cash, what are you going to do? how will you make money? michael: there's stuff that has sold off already that offers some attractive entry points. we are at a fork in the road. do you think this is 2011 where the china growth story and matter-of-fact train -- and manufacturing recession is again to the debt downgrade where we will have a couple of years a great performance or do you think this is the beginning of the end of the credit cycle? lisa: what are you looking for to signal it is time to buy? michael: high single-digit
default rates. i think this is the beginning of the end of the credit cycle. i think it means we are on a trajectory where yields are going to continue to increase. prices are going to continue to fall. default rates will rise. you will have massive outflows from retail. i think we are in a situation that is not a blip on the radar. i think liquidity in the market will continue to be challenging, which brings up lots of situations where you could get outflows in liquidations and hedge funds and retail mutual funds. david: you are emphatic and confident, and you have been right. tell me about the other side of the trade. not everyone agrees with you. we have had people say this is the time to go into high yield. tell me what people on the other side are saying. michael: it is always a trade. because i think the market is not going to perform well, there's always opportunities to
differentiate and do well in the market. you want to own the names that have already sold off, not the ones that have not sold off yet. i could be wrong if you get significant inflows into u.s. high yields. that is one area where i could be wrong. the other is if you see an acceleration of earnings growth and grow into your capital structure. the size of the u.s. high-yield market has doubled since 2007. investment-grade has more than doubled. it took 25 years for investment-grade to double. stephanie: we have to leave it there. thank you. scott minerd, michael contopoulos, jonathan ferro, i will see you in your. david and i will be back next week in davos. ♪
welcome to "bloomberg markets." all 30 stocks are lower. we open with the nasdaq down 3%. from world news headquarters in new york, i am betty liu. here is what we're watching at this hour. stocks plunging. 30 minutes into the session. off aftere dow is stocks dropped in europe. china has entered a bear market. is plunging oil prices, down as much as 5%. the 12 year low is sending shocks throughout the financial market. what is next for oil? we will of the authoritative voice on oil history. daniel yergin is here. he is the ihs vice-chairman of research. let's get to julie hyman standing behind a market desk.