tv Bloomberg Markets Bloomberg January 15, 2016 12:00pm-2:01pm EST
selloff we have been seeing. the dow and s&p are out 8% each for the year to date. the nasdaq is down nearly 11% thus far this year. it's a broad-based selloff we are seeing again today. allou look at the i map, the industry groups are lower today. that are seenups as economically sensitive -- also we been watching the market internals. more decliners than advancers. we been looking at the high-low ratio. this is over the past year, we saw a spike in the lows around the august-september selloff but it only lasted a few sessions. it's just as a grinding declined we have seen in the beginning days of 2016. oil prices continue to selloff,
although we have not necessarily seen the correspondence every day this week. we are seeing oil under pressure because of these global growth concerns, down 55%, 2950 is where we are watching it. we are seeing money go into things like gold, catching the bit today. the 10-year, notable move today, touched below 2% on the 10-year note. 2.03% of treasuries down, is the yield at the moment. risk off and money going into these types of assets. odd thingse of the about this selloff is the fix is relatively benign, and a lot of people saying with equities down so much we would expect a spike up in the vix. we have not seen it moved the way it did in august. julie: the vix's post to be the fear index.
we are seeing a big move today, 28, but her -- for perspective, look last year at the fix. here is the spike we saw during the selloff in august and september. i saw one strategist posit that the was more unexpected, idea of intervention when it comes to the chinese currency is new. now we are kind of use do it. we are not seeing that kind of spike in the vix. something folks are looking at is high yield, credit spreads. if you look at an etf that tracks high-yield, this is the hyg, and you have seen it fall to new lows. this is another way that some investors are trying to assess the risk sentiment out there in the market. scarlet: thank you for that coverage of the market. you're watching "bloomberg markets." we will stay on the movements across stocks, bonds,
currencies, commodities. we went to get you caught up with news from around the world. mark: rescuers are searching for 12 people after two u.s. marine helicopters collided near hawaii. spotted.field has been in jakarta today a display of grief and defiance. hundreds chanted and saying during a vigil at the site of attack,y's terror shooting and explosions killed two people in a busy shopping area. demonstrators said they will not given to extremists. one suspect was killed, two were arrested. lindsey graham has made his decision about an endorsement for the presidency. his support, jeb bush.
he holds major clout in his home state of south carolina, one of the critical early voting primary states. considered a heavy contender for the republican nomination, but his campaign has logged behind -- like the kind that of ted cruz and donald trump. sean penn said he hoped to start a conversation about drug policy with his article about el chapo guzman. he tells "60 minutes" that is article failed and instead the public has been focused on how in octoberth guzman while he was on the run. global news 24 hours a day. i'm mark crumpton. back to you. scarlet: shire is a specialty pharmaceutical company based in ireland. on monday the company made its third bid for a hematology specialist. this $32 billion deal will
create the world's biggest maker of so-called orphan drugs for rare diseases. to joine seo is going us. the day you announce the deal with baxalta, shares reacted negatively. curious how confident you feel. guest: i don't think you can judge a deal on a stock reaction the first day. we done very well. it is a strategic deal that makes a lot of sense financially . it is a global leader in rare diseases, it is sustainable, and creates a lot of value.
the more the shareholders here and learn about the deal, the more optimistic, the more they like the deal. >> one of the elements of the deal is it you can preserve the tax-free nature of the spin out from baxalta. when do you expect to hear from the irs is for is getting a definitive opinion on this? guest: you can imagine the tax issue was a major issue in our diligence. the more we learned about the company, the more we like the company. tax was core. we worked with the world's expert in this area and our board received an opinion from these tax experts that was the .ighest opinion you can achieve >> do you have any timetable as far as when you might hear from the irs on this topic?
guest: the irs well audit baxa lta's accounts. who gave thets board of directors the highest opinion you can achieve, which is rare in this area that they should not jeopardize the tax rates been. -- rate spin. been ayourself have target of an inversion approach. tax inversion deals are not going away. now that you have a world leading orphan drug branch, curious what your concern is about whether or not you could become a target again. guest: i don't worry about that trade this deal is not about tax. it does create -- create cost synergies but it's not about cost. we are bringing to great companies together that will be .he undisputed leader
we add a lot of great and very talented people. >> outside of orphan drugs you have a port olio of adhd drugs and gastrointestinal products. somebody has suggested you could spin out that business redesign an option? -- business. is that an option? current plans no to do it but it is option analogy we have. we always have the same criteria for our franchise, it is about innovation and growth. if they fail to deliver that, we take a look at them. >> in this deal, you have announced $500 million of synergies. some investor analysts have said this seems too low. i'm curious how you view that is tooe, if you think it conservative, when we could see a revision to that, how you do that number. manager like to be a
that under promises and over delivers. we could say it's a fairly conservative number. this is not about cost synergies. we said it would be over $500 million. taxe will be revenue and synergies, but that did not drive this deal. been very busy doing deals over the last few years, you have integrated eight companies into shire. house soon could we see you back in the market again? guest: is complementary of you to say "i." thatactually a great team has done this. we're always looking for opportunities. we are about to close one deal we pay to $6 billion for an one deal to close in june. we will be scouting if there are interesting assets out there. >> drug pricing has been in the news in the u.s.
this area you have been building up is an attractive area. curious how you see this playing out in terms of the drug price issue, if you see it being an with different prices. guest: it's not just about price, it's about value. the value equation is in our favor. >> one other element of ss, just curious how you view the pipeline and the potential what could be a significant threat of pressure in coming years. baxalta is the undisputed leader in hemophilia. they have a great pipeline. they're introducing new
products. patients are loyal. medicines they are on for yours. well precision, even in a competitive world. it's been a tough market in the last week or so. where do you see valuations going? guest: it's been a turbulent market, i have felt it myself. if you bring a company to invest , a lot of cash flow, double-digit growth, great management team, great pipeline. we are an attractive investment object even in these times. >> thank you for your time. before we get to break, we want to take a look at the markets once again. big selloff with the dow and s&p and nasdaq after section lows right now. 33 stocks lower
for everyone that is higher. to have wti and brent down $29 a barrel. it's a risk off scenario today. 2.03%.year yield at also getting a bit, rallying to the strongest level since august after disappointing retail sales numbers for the month of december. we will have more market coverage when we come back. ♪
closing stores. roughly 100 of them are the smaller walmart express formats in the u.s. money-losinge locations in brazil. hit manufacturers are being i slower economic growth and a strong dollar. factory production fell in december for a second straight month. automakers turned out fewer vehicles because demand is slowing. industrial production fell more than forecast. wikipedia getting an infusion of cash for its birthday. the nonprofit online encyclopedia is getting an endowment that should grow to 100 million dollars within 11 years. wikipedia turned 15 today. 33 stocks.
advance decline line has been incredible throughout the selloff but it's only getting worse. is it finally a capitulation? hasn't happened yet. we're falling to the lows of the session for all three major averages. we've got some of the oil stocks .hat have been selling off if there are three things you don't want to be involved in, it's copper, gold, and oil. has alsomcnamara been declining. citigroup and wells fargo were interesting because we had those companies coming out with their
earnings report, both of them beat in terms of earnings per share. and investors have been questioning the quality of the revenue increase it saw. some of it was from asset sales as well. there's been a lot of talk about whether earnings season would help. early, very early earnings season has not helped. scarlet: not so far. i was looking at the best and worst performing markets across the globe. you are looking within the u.s. market today and so far this year. what have you found? julie: for the year we are down 8.4%. it's been 11% for the nasdaq. take a look at my bloomberg terminal. let's start there, materials the worst performers. overtaking energy. doing veryalso poorly, at a time when we are
starting to get earnings. the group that has been the best, utilities, both because they are defensive and they benefit and there are lower bond yields. and then let's take a look at the individual movers here. it goes along with what we were talking about. a lot of energy movers. on the top we have stuff like time warner and macy's. overall, a dismal performance in 2016. scarlet: notable in that the best performers up 12.5%. julie: versus the worst performers down 40%. scarlet: still ahead on "bloomberg markets," oil tumbling below $30 a barrel. were talking about brands and wti. ♪
scarlet: come inside the bloomberg terminal to look at the major indexes, we are at our session lows right now with the nasdaq off by 3.6%. market breadth incredibly negative, 33 stocks lower on the new york stock exchange for everyone that is lower. this is the shanghai composite index intraday. note from one of our viewers who mentioned the 3000 level was critical for the shanghai composite. there was some thinking that perhaps authorities would intervene when the index was at 3000. they did not trade we headed into a three day weekend in the u.s., which has a lot of people worried about the long, especially if chinese authorities decide to step in, make policy changes, or intervene in another way over
the weekend. we will continue to monitor all these moves for you. in the meantime, we need to talk about oil. it is the second time this week that crude prices have fallen below $30 a barrel and that is because there is growing concern as well that iran will restart oil experts, flooding a market already suffering from global oversupply and weak demand. the director of business development at the energy consulting firm joins us now from houston area when we look at brands, wti hitting $29 a barrel, oil prices clearly not finding a floor. what will it take for the commodity to catch a bid and for the shorts to get squeezed? it's going to be a major financial move. we have to see some kind of support, definitely in china. oil producing countries, to cut
back on their production. at these levels, it may happen soon. it may even be canada. we will see production come back soon. scarlet: you are saying while oil prices are a problem, the real problem is some of these more marginal players. is.: it that's the concern going forward, it's not about $30 or $20 oil. it's an economical disaster. i think there could be a contagion of opec countries that could fail in oil prices keep going under and they keep overproducing. scarlet: what is your forecast for oil now that exports need to be factored in? it could happen as early as monday, next week? carl: we could see oil flooding the markets. i don't think that their production is going to be as high as most people think. it is probably closer to 2 million barrels a day.
it will be significant, but i think it is something the rest of the opec countries will have to work with them. right now we don't see that happening. scarlet: they need investment for some of that infrastructure damage they suffered here it is that forthcoming when financial markets here are tumbling the way they are and companies are under pressure? carl: it will be. that is what makes it a political situation, where companies are going to want to help iran. countries like saudi arabia might not be ready to spend that money or have the money to spend yet maintain relationships with those consumers. i introduced earlier the idea of the shanghai composite not being supported at the 3000 level as the reason why u.s. stocks are tumbling today. the direct link between
what happens in shanghai with global oil prices? carl: china is huge. that is one of the major reasons why we see oil prices so depressed right now. we saw the u.s. pick up their production. what is really hurting now is that china is not making up for that oil we pushed back out and now that the u.s. will be exporting oil, it makes even more of an oil glut out there in the world other than china. china needs to pick up and possibly the whole area to pick up the slack on the market right now. scarlet: the demand is elusive for now. this is clearly a supply driven slump. u.s. production, nigerian production. what does the bottom look like in a supply driven slump versus one that is demand driven? carl: at this point, somebody will have to go belly up. a country like the jury or venezuela will say, we can't afford to do this anymore.
at that point, production is going to stop great it might happen in saudi arabia also. at some point the financials are just not going to work. that is where there is a concern in canada. scarlet: what country is most vulnerable to doing that? who is most likely to do that? carl: the smart country would be canada. the unfortunate country would be venezuela. scarlet: thank you so much, carl larry.
continuing as we watch this selloff into new to accelerate trade all three major averages are trading lower. year-to-datet the performance in the s&p 500, we been monitoring that as well and all the major averages. the nasdaq that unchanged, some sort of a bug. as for oil prices, we have been watching those for the year as well. we were looking earlier at the individual groups within the s&p 500 that are lower for the year to date. if you look at oil individually, we have oil --if you look at oil year to date, apparently were having graphics difficulty, been short-circuited by the markets today, perhaps. if you look at oil year to date, you see straight lines downward and oil prices are off in the neighborhood of 18% for the year to date on top of bad performance last year. the 10-year note has been seeing a big upsurge, which pushed
yield down below 2% at one point, now they're a little bit above that level but obviously, a lot of losses overall to pick from. there is the 10-year. scarlet: we will be checking in with julie shortly. we went to get more perspective there and we're joined by bloomberg anchor erik schatzker. erik: it does pay to talk to a few people and figure out what is at the top of their minds as far as concerns. let's refresh everybody's memory as to what the major concerns behind this extended selloff are. oil prices are alarming to people, the speed and magnitude of the decline in withdrawal of fed stimulus, the major leg of the stool on which the global recovery had been resting has been taken off.
the fed is in tightening mode. europe's recovery continues to be fragile. course, what is going on in china, almost impossible to know but i will say this, having talked to several people who do thatess in china, they say the real growth rate in china is probably those are two 3% than it is to 6%. here's a fascinating story, unsubstantiated, but these are the kind of things that fuel concerns and lie behind the selloff in the market. i heard from somebody the other day that a former u.s. treasury secretary was in china talking to one of his former d, how fasts and aske is the chinese economy growing? we don't know. unsubstantiated trade the reason i mention it is because stories like that get around and cause concern. scarlet: it's like a blackhole
right now and they're making it up as they go along in terms of their response. erik: that is the bare case. the bull case would be that the chinese government can figure out a coordinated program of monetary and fiscal stimulus and reflate the chinese economy or at least reflate growth the way the fed was able to do here and int the ecb is trying to do europe. here's another thing i want to show everybody. jeff gun lock on the conference call the other day was talking about in his mind the probability or the likelihood that stocks would catch up to junk-bond prices. we can illustrate that great here are three lines -- that. here are three lines. you will see in just a moment, the red line is stocks. the yellow line is high-yield. this is the cdx, high-yield credit default swap index, and then the blue line of course is brent.
if you look at high-yield and you look at brent, you see over the course of the past year they have track each other pretty well and for much of that year, stocks tracked brent and high-yield. in august we had a big selloff in stocks, broke the pattern, and in the last quarter of the stocks dramatically on a directional basis outperformed high-yield, outperformed crude directionally. if you like, stocks have caught up to high-yield, to crude, and maybe it helps to explain why we are where we are today. scarlet: maybe it's a game of catch-up for now and we will see where things go after everything is squared away. erik schatzker, thank you so much. some perspective on this. ♪
scarlet: mark benioff recently declared he was steering clear of investing companies valued at $1 billion or more. he said these so-called unicorns should go public. with markets plummeting, aren't they had a remaining in the private sector? >> tv audience joining us on bloomberg radio. i'm glad to have you all. interesting day in the markets, terrifying day if you are long in the markets with a big drop in the dow. what a great time to look at what is going on in the private market. bigguys just took a investment and with that investment, you guys now have the unicorn valuation status. >> we do.
cory: i've got to estimate these markets and what it means to you as a private company. describe what you guys do. guest: when you look at the market today, you see variation and markets, commodities, all the different components. aat we build is a technology, spreadsheet on steroid that allows companies to make decisions planning around forecasting in real-time to collaborate around the world. calculation engine, modeling tool, planning platform the changes the way companies plan optimize their business operations. you factor in what we have seen in 2016, the global selloff, what is going in china, questions about growth in the united states, global growth.
how does that factor into you and running your business and your plan to maybe ultimately go public at some point? guest: what really matters to us when it comes to going public -- you grow a company like we have done, we grew from 20 employees to 600 in 3 years. what you want to make sure is you are doubling and growing your business. the day you decide to go public -- you cannot time the market, but you can choose your time. what is happening in the last 11 [indiscernible] business leaders are surely looking at the market. is that going to impact your
customer's desire to spend money, whether with a start up company like a sales force? guest: we have not seen that at all. we are operating in a market that has been dominated by 4 vendors for 30 years. we talked completely antiquated given the speed at which companies have to make decisions. cory: there have been vendors for bigger companies have great planning software and has been used for decades. guest: in the return on investment of our solution was very small, companies could --profounda proud reengineering. market say cynically the is fluctuating, going up and down that much, puts pressure on companies do have the right tools to make better decisions and that emphasizes our message. in a way, the fluctuations of the market are positive for us
but we have not seen anybody yet around the world. carol: this latest round of financing gives you guys evaluation of a tech unicorn, over $1 billion. do you feel comfortable in terms of the financial metrics that you deserve that kind of valuation? there's a lot of questions about tech companies out there that do have a lot of access to money. what are the financial metrics you can tell future investors that this is going to make a lot of sense? i felt pretty good about it because we started raising this last round of financing when the market had basically already corrected. we made a decision to do this 2015 and saidry
we would do it in q4. what matters to me is to get the right amount of capital, to engage into the strategy we have already defined. the valuation doesn't matter. what matters is what we control and what we control is the capital. abigailo to doolittle live from the nasdaq. the nasdaq the worst performing a three major benchmarks. selloff ate stock the nasdaq is intensifying. the composite index is now down 4.1%, leading to losses, on pace for its worst intraday drop since august 2011. clearly back in correction mode on its exposure to biotech and big tech. the big question could be, is
this a tell for the nasdaq and what is to come over all? after the company posted a mixed fourth quarter cut its first-quarter forecast on weak pc demand. the company is saying the new year is off to a difficult start especially relative to china. clearly setting a very negative bearish tone here at the nasdaq. it includes apple, stock is down sharply, perhaps in sympathy with intel on the week china view and the news the company may have to pay $8 billion in back taxes on a european probe after the company paid $348 million in taxes to italy last month. the timing of this news is poor for a stock that is down about 20% since early november on concerns around the iphone. scarlet? if you come inside the
bloomberg terminal, let's put it into a broader picture for you. we have the dow, the s&p, the nasdaq just obsession lows at the moment. 500 you've got 24 industry groups. this is a finer slice of the market overall. all 24 groups are down. the best performer is household products industry group, and that is down 1.4%. if you search it out to 5 days for this whole week, there are no industry groups that are rising. utilities have been little changed. clearly the big losers here are insurance and semiconductor stocks. cyclically tilted companies, they are very sensitive to the economy. that is explaining a big part of it. in addition you have oil prices remaining after 12 year lows. at $29 ade, wti, brent barrel right now. lots of concern coming out of
howard davies was asked when the market volatility will come to an end. >> i don't think it's going to end soon. i think there are some folk lines in the financial system in the -- fault lines in the economyl system and the that have not been fixed since the crisis, the amount of debt. it is not been removed, not much deleveraging has occurred. scarlet: it is china's biggest acquisition ever of an overseas electronics company. general electric selling its appliances to the higher group for 4.4 billion dollars. antitrust worries killed a previous deal that ge made. u.s. was to expand in the -- wants to expand in the u.s. the debate over the transpacific partnership is heating up. a big hurdle is getting the country's pass a massive trade deal. . a u.s. trade representative countered some of the criticism. >> whether you're a fan or critic of nafta, this is not
nafta. he was very specific. he talked about making labor and environmental obligations as strong as the rest of the agreement and fully enforceable. that is what we have seen with tpp, it has brought labor and environmental protections into the core of the agreement and made them enforceable like any other provision. vhp bulletin says it expects to take a write-down of four point $9 billion on its american shale oil assets. yes trillion national resources company has been cutting capital expenditures and looking for other savings. the emissions scandal may be hurting volkswagen in its home market rate vw market share in europe declined for the first time since 2007. you has fallen by one percentage point to 25%.
this has been our global business report. bloomberg.com for more stories, visitbloomberg.com -- for more stories, visit bloomberg.com. surveyingn has been the damage and sees plenty of opportunities to highlight a couple movers. julie: i was talking with one of our editors here who said, when is the last time we have dropped like this in the nasdaq. i said on that august selloff day, the nasdaq actually felt at one point during the day 8.8% before closing down 3.8%. this feels like a big selloff but it's interesting to compare and contrast it with the august selloff, which seems shorter at the time as well. it'sussell 2000 is one, down as of 4% today. if you look over the past year and what we have seen for the russell, you get a snapshot of that. if you dated back to the highest
we saw at the beginning of the summer, we are in a bear market. another group we have been watching has been transport and we have seen that group enter a bear market. if you go over the past year, you get a good snapshot of what has happened. the fact that this group has been lagging has been something that some bears have been pointing to. one of the indicators that bloomberg news pointed out today was the yield comparison between dividends on u.s. equities and u.s. treasuries. them,s the gap between between equity dividends and treasury, and we're seeing that gap the whitest in a year as we have seen stocks fall and also treasury yields continue to be at relatively low levels. we've talked a lot about valuations, when do they become compelling. in termseen valuations of price to earnings at their lowest since october 2014.
this is another way for investors to look at that. have not founde valuations compelling enough to come back in a sustained way into u.s. stocks. scarlet: we are on the cusp of a three day weekend, and weekends of late have been the chinese government has had time to tinker with things are announced policy changes. julie: it's the third friday of the month, expiration. on do get some wonky trading the dates you get options and future expiration because the first friday of the month was january 1, even though it wasn't an open day in the markets. scarlet: that might account for the increase in volume as well. up 60% versus the 100 they average. thank you so much. we will be checking in with julie throughout the day for more insight on this movement here. now we want to bring in bloomberg guest columnists.
guys, you have been talking to your various sources. it feels like more of the same, but on a grander scale, doesn't it? >> i would say right now you're seeing greater acceptance of the idea of deflation or dis-inflationary trends. that is a huge problem when you think about how much debt there is outstanding. thatyou get deflation, means less money can buy the same thing. that debt outstanding which ballooned in the past eight years will be that much more expensive to pay back at a time of deteriorating earnings. causing a hugely shutter of fear among markets, which is what we are seeing. >> especially when you talk throwsil, every time oil up a number, it fell through 60, there was always this wishful thinking on people's minds, how could it get any
worse than this. it is bound to rebound or at least stabilize. i was listening to the jpmorgan earnings call yesterday and they are still thinking -- they said if prices were to stay around these levels, their provision for credit losses was $120 million in the quarter for energy debt, if oil stays at this level we are looking at another $700 million of losses. that is a company with not a big portfolio of oil debt. there is plenty of other out there with exposure to it. this idea that the wishful thinking on the rebound in oil is sort of gone now, and it's going to stay low for a while, who knows what the bottom really is? for a wild they're like, it can't possibly fail. we're going to get a recovery. >> right. wishful thinking for a long time.
>> i love his investment letter. one thing he would say is there is a pendulum in the market which he calls bipolar. for a long time it was overly optimistic. every bit of new data we are seeing is being viewed through a pessimistic lens. at a certain point there should be some kind of benefit. if people are looking at a situation that uniformly looks , people are looking at this and it's not clear the central bank could come in with a substantial rescue at this point. --if you look at the fix, vix, it is elevated. the move has been steady and a grind higher, that's the intraday. it happen in august.
-- happened in august. you might argue it is more concerning this time around because it is a buildup. >> i'm not sure how much predictive value there is in the vix. spikes have not necessarily lead to big their markets. it's clearly indicative of historic volatility, expressed in expectations for the future. i'm not sure how much you can really predict from some other level. you can type gadf go on on terminal or search gadfly the web. with the dow deep in the red, pimco will be joining us. ♪
3%. the nasdaq has been the biggest loser of the day. -- have been offset by volume. the biggest surges in volume, financial. shares of 90% over the 20 day average. in technology, up more than 90% over the average as well. we can also take a look at the groups that are on the move today. they correspond to some degree. nearly 3%.are down energy, technology, materials, anything that would be touched by economic weakness has been slumping today. all of the groups in the s&p 500 are trading lower. this takes us to pretty steep losses for this young 2016. the s&p and dow are each off by 8% for the year to date.
the nasdaq is down by 11% for the year to date, and has led the selling here. you can see the returns we have seen thus far. i have been looking at the biggest losers in the dow for the year to date, the physically we see a lot of these economic bellwethers that have been doing poorly this year. companies like caterpillar doing poorly, intel falling after its negative earnings outlook. we will have more on that. disney has suffered from declining sentiment, and dupont also declined by about 5%. scarlett, to you. scarlet: thank you. this is bloomberg markets. we will have much more on that movement in the financial markets throughout the hour. mark: the obama administration is holding development on public land. tabl
rates.y raise royalty about 40% of coal mined in the united states come from federal land. in somalia, militants backed by al qaeda claims to have killed 63 kenyan soldiers in an african union military base. the group is called al-shabaab. they have been waging a war in somalia for almost a decade. they were driven out of small you capital infertility by government and african union forces. 2020 been facing the under the microscope after they face allegations of possible bribery. whether 5 million dollars in sponsorship money was paid to help tokyo's secure the games. president isaf rumored to have been prepared to sell his vote.
it suggests you drop support for istanbul after turkey refused to pay an back to tokyo after the japanese did. global news, 24 hours a day, powered by a 2400 journalists in more than 150 news bureaus around the world. scarlet: thank you. we want to turn back to the markets because my next guest says the declines we're seeing in risk assets are not based on fundamentals. the executive vice president at pimco joins us now from newport beach, california. thank you so much for joining us. he worry big picture thinker. you think in terms of what the fed is going to be doing later this year, not what it is doing today. when you look at the markets and the violent selling we are ifing throughout the week, it is not fundamentals, what is driving these losses? >> clearly, it began with flows, not fundamentals. one has to worry about with george has called reflexivity,
where movements and markets can begin to have some feedback into the economy. recall that this happened after china in august 2011 devalue this current when it tried to make its goods cheaper to the rest of the world. there was a cratering of markets. they did not fare well, but they snapped back. the fed eventually raised interest rates. we would suggest that is likely to happen again, but we would be a little bit leery of course. we would be wanting to stay up in quality. what is happening more and general is trying to adjust to a new foreign-exchange regime. 1971, wherell from markets and prices. but here is where china is part of the imf currency basket, about 10% or so. it is becoming part of the fx energy and globally. in the state-controlled there is uncertainty. markets do not know and they do not like uncertainty.
that uncertainty breeds a disengagement from activity in markets. eventually markets looking used to this sort of thing. but for now it is an adjustment process. it is an entirely new regime to have some sort of state control in it as much as it is right now. scarlet: this is still a carryover from the august evaluation. i like what you set about to the world adjusting to a new regime. is there a currency pair you look at as a currency key driver? a biggerprojects decline in the markets have been priced for in terms of the chinese yuan, . just a fewrojecting and now they are entertaining the fact that they may be a few more. raise the represents some
degree of uncertainty because it has not been made clear what china will do. whether will ship from focusing on its currency as it is valued against the u.s. dollar, or basket of currencies that reflect its trading partners. the activities it hasn't with its trading partners. it has not made that clear yet. but it does have a huge arsenal of reserves. and has built up lots of money. it is spending $100 billion a up.th to keep its currency o it has three different choices. costly,lowly, that is $150 billion or month. a managed flow, where they guided down, or let it float freely. that is the last choice, and one that would be too much of a freefall for now. , maybes one solution markets were whole, but it will not likely happen. .here is not even talk of it
in accord thing that happened in 1985 when the globe said let's devalue the u.s. dollar a little bit. it is not likely now, but if it ever got really unstable, some in the markets might begin to think of it. but right now it is in the hands of the chinese to communicate what they would like to do next. scarlet: they have that opportunity this weekend. we have a three-day weekend coming up for traders and investors in the united date. there is some concern that shania will announce policy decision -- china will announce policy decision or action over the weekend. what risk is that for workers over the weekend? >> a three day weekend when markets are falling grades a lot of nervousness and anxiety. it is not the sort of weekend where information will flow out to change the equation. if anything, if there is information flow committed will more likely be to the positive. the only negative would be a lack of information, as i have been suggest the great markets are in the dark.
right now it is flow driven. flows can exhaust themselves, and that is a caution for investors who want to get out of risk assets now, while u.s. economy is still performing reasonably well and european economy is to be as well. japan is moving as it has been for quite some time. thatentiment is so poor they may be selling at the lows. the adage is you make your fortune when the market's down should be considering purchases of riskier assets. that does not mean that they are risky, but more risky than u.s. treasuries. scarlet: you mentioned that the adjusting to a new fx regime. where are we in this business cycle? is it fair to his previous thiss as a template given extraordinary bank intervention? >> know, in a sense. you could say it still has not
solved its aggregate demand problem. where will be the source of the growth? the central bank, by no means, any source of economic growth. they simply move it around in time. a major source of growth in the long run is for people and entities and government to invest. we have nothing a lot of that. the government in the united states in the in itself, in people? infrastructure seeking to growth over time. consider that as an example. the interstate highway system which started in the 1950's under eisenhower, that is 50,000 mile of roadways still being used and still providing benefit to the united states. we have not seen any major change in the terms of transforming economic landscape. we have not solved the demand problem. secondly, there still a lot of debt. been sold.has not it is different now and it does
mean slow growth which is why pimco projects policy rate globally to stay low for the rest of the decade. the one for japan, maybe in two for the fed. a very good rate backdrop for equities and credit risk. what is needed, the glue in the end, is economic growth rate that is the thing that comes into question when the markets are as unstable as they are for now. scarlet: thank you so much for joining us today. before we got to break, a quick check on where stocks stand they are, or where falling right now. have the dow industrials off by 2.9 percent. off of the lows by the session but all members are lower. intel and dupont are leading the way. procter &formers are gamble and home depot. 2.9% atx is no doubt
scarlet: welcome back to bloomberg markets. it is time for the bloomberg business flash freeze the biggest business stories in the news right now. shares of disney cutting their lowest since august barclays cut its rating on the company because of concern about subscriber losses at espn and growth in the studio division. they cut from underweight to equal weight. chipotle is taking itself off the menu next month to hold
a safety meeting. they will close all their stores o talk about8 t safety. sales and stocks have been battered sense and e. coli outbreak sickened more than 50 people in united states last year. and the largest retailers scaling back. walmart will close 259 of almost 12,000 stores. they want to focus on better performing locations as well as the e-commerce site. businessour bloomberg flash update. let's go to the markets desk with julie hyman. she has been keeping track of a couple of big movers. julie: they cap tech has been week this year as we see the nasdaq under performance. as we take a look, microsoft, amazon, intel, apple all falling today.
intel has some news that came out, it came out with earnings and also a revenue forecast that missed analyst estimates. that is one of the reasons why it is underperforming. speaking earnings, we also saw from citigroup and wells fargo. both of those came in ahead of analyst estimates. especially for citigroup, analysts had been resting the quality of revenue. that is one of the reasons why it is falling more than will -- wells fargo. and disney, we're watching that one, downgraded to underweight. have two questions of profitability at espn. a lot of investors have been bringing that up as lo of late. scarlet: thank you. ecs are seeing outflows. we're talking about equity and high-yield etf's when it seems the sky is falling there are two ways that investors can play the market. oure with details is
bloomberg intelligence reporter. it is no surprise they are fleeing equities and high-yield, but they are seeking shelter somewhere. >> two places. first, treasuries. treasuries has taken in $3 billion, the largest category of flow. up until today we saw the steady climb into treasuries. know that this is so widespread because they're going and all kinds of maturities. it is not like someone were on is -- fed, it is all over. safe, 40 basis points this year. it is like a money market fund anyway. it is up 12 lane dollars so a lot of people like it. the other alternative is teal team. a 20 plus year treasury etf. but that one has a higher duration. so it has a little more
volatile base. you have back to 2008, the huge financial crisis. the market was down 33%. this was a 33%. have lookedies, i back, they've come through time and time again and offset equity losses as a pretty good hedge. scarlet: they are a reliable safe even when there's distress and equities. has been a reliable safe haven, but not in the past year. >> building gold is supposed to go up with the market goes down. that is not true. it has zero correlation. but we see investors rushing into gold is yes, and not just others. area you is the ishares goal trust. this is used by advisors in retail because it is not liquid enough for the guys. it is cheaper.
the long-term people like this. they are climbing into it. when you see the long-term people get into it that is indicative of people really concerned. so golden treasuries is what is about this year. totally different from last year. scarlet: thank you so much. eric is our bloomberg etf specialist. still ahead on bloomberg markets today's selloff continues and emerging markets are feeling the pressure. we will take a look at opportunities in latin america. ♪
2009. they are set for a third straight week of decline. this of course is chinese and european shares tumbled into a bear market. how are the markets in latin america faring? cory johnson carol massar join us now from bloomberg radio. >> thank you so much. we want to talk about emerging markets getting beaten up once again today. another tough year in 2016. tom mcdonald, cofounder and managing partner joins us now. onat to be talking with you a day, it week a year already that has been troubling for global financial markets. emerging markets down about 11% as a whole so far. a little worse than developed markets. new play in this area. tell us what you think is going on. is it a little money? -- muddy?
>> that is one way to describe it. we use a water analogy where markets are volatile. the water is choppy. we would say that there is white caps. large waves. >> i am a whitecaps are never good. >> laclede is no tsunami or hurricane force winds but we are in real choice times. what our view is that we have to be patient, continue to update our views on opportunities , especiallyegion latin america and more broadly, emerging markets. what we're seeing today, china, commodity oil, what is interesting for people to notice that the size of commodity reliance of gdp is relatively small. in brazil and mexico for example, brazil's exports is a
portion. this is commodity driven activity. mexico it is similar. those will be commodities. the impact of oil globally will have a negative impact on mexico's growth. despite the larger global macro drivers working against latin america energy markets in general, you also have the case of brazil, political instability. that is a more open to will to layer on top of the emerging market challenges. interesting. recover -- i see waves as opportunity. there is a lot of awfully adjustment happening weather is
adding volatility, but maybe this is a time for people to take some that. look at a down market is a chance to buy or get rid of some things that are never going to work. about it, you being a traitor mentality, we are long-term investors. we are not able to pick the bottom of a market or make a quick trade in and out because our capital profile, investors desires are longer term. we have to be thoughtful and really look at the long-term drivers. form our perspective, timing is critical. >> is this a time of entry? >> today, no. we think that it is more likely that in the case of brazil where you are seeing in our world devalue and distress for the first time, because of the confluence and growth of the public markets and real estate, we still think that there are worse things to come.
brazil a yellow light on , and yet within the region are still other countries and other suffering, that are probably under some people's radar but are very interesting places. colombia, peru, and recently argentina. cory: i wonder if this is one of those navy out with the bathwater markets. he could do some selective picking, not just countrywide selectivity. looking at individual issues and things that my be doing well regardless of how much red is on the screen. >> no question. we think public markets, for example in brazil the housing sector, consumer confidence is very low. we do not see anything in the short-term that likely will affect consumer confidence. if we look in the recent past, there have been four times more sales cancellations of new home acquisitions in brazil. those are historic lows. we do not see that changing.
the driver consumer confidence in philly comfortable about people's work situation, overall inflation, unemployment has to change in order for them to change their mind. >> thank you so much. we will see more downside? >> i would not be surprised. >> thank you. back to you. scarlet: thank you. carol massar and cory johnson. still had a bloomberg markets, financials have the worst performing routes today. from j.p. headlines morgan and wells fargo. ♪ we live in a pick and choose world.
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we want to check in a bloomberg first were news. mark barton has those headlines from our news desk. mark: the european parliament has delayed a vote on a watered-down plan for new test on car pollution. lawmakers who want to go easy on the auto industry are trying to line up more support. it never of european governments are concerned about the added cost for the automakers. to go before the iowa caucuses senator lindsey graham is endorsing former florida governor jeb bush for president. the south carolina republican who launched his own presidential campaign last summer, but dropped out of the race in december made the announcement this morning. backing could be important for bush. south carolina holds one of the first primaries. once an governor status declared for flint.
a debris field has been spotted where two u.s. marine corps helicopters collided last night near hawaii. those are officials say 12 crew members were on board the aircraft when they went down about two miles from north shore oahu. military officials there were no civilians on board either helicopter. global news 24 hours a day powered by our 2400 journalists in more than 150 news bureaus around the world. i am mark crumpton, back to you. scarlet: thank you. stocks deep in the red after a dismal rate on the weakness from overseas. closing of the weakest year since 2009. this of course is raising concerns about the momentum in consumer spending in this new year. for some perspective we're joined now by kevin logan, chief u.s. economist by hb at hsbc. you look beyond that, to the
discretionary categories, furniture, sporting goods, restaurants, that is doing ok. is that too simple stick of a way of looking at that? is true. price changes are very important in retail sales. we have had is inflation going on for some time. we dig in ao little bit, we find that spending is rising at a 2% pace in terms of the quarter. it is not negative, not by any means. strong: yet we size -- saw a sharp drop in december in auto sales. >> that is just noise.
the household sector look strong. auto sales will continue at a healthy rate. that will give us some wriggle room in the month. scarlet: what about the manufacturing side? the data today was not encouraging. readowest >> export seven flat all year. imports are rising. a lot of competition against u.s. manufacturers. a lot of clement, and a lot of machinery is going in. that has stopped dead. the industry that has provided
primary metal producers, all of them are contracting. scarlet: what does that mean for the isn numbers that we will be getting later on in the month? if we have yet another week month of manufacturing, could that drag the services economy down? >> that is the important question. there is a difference between the nonmanufacturing, which is still a quite healthy lows, and all the manufacturing indicators that are headed south. we've gone through this a few other times. three industrial , we can see some of that now. the u.s. economy got past that. we may be experiencing something like that. but it might be bigger this time. china is now the second largest economy in the world. stress on u.s. many factors
could be more this time around the back in the 1990's. scarlet: do you see a prospect of an industrial led recession? >> it is a prospect. you look at mining, then it is all down. right now we have seen inventories being cut back. that may just be an adjustment. when it is finished, we are fine. we can see industrial production: decline for a few months. scarlet: forecast has been reduced for the fourth quarter. will this come in around those levels? >> it could be worse. some people worry about that. what is going on in the fourth that's thosembers who can see that it is often little bit, but the big decline is exports are falling and imports are rising. still trending along at a good pace. the dollar spending is of a
bit. some sectors are doing just fine. but exports, inventory, and business investment are all weakening. scarlet: we have to wrap this all together. what does this mean for the federal reserve which has held up to its lineup they will pursue a gradual path to rate increases after demising interest rates and beginning liftoff in december? isif it were not for what going on in the commodity market and the financial market right now, they might look at this and andthat is the normal ups downs of the economic data. we will wait that out. we were not intending to do anything until march in any case. let's see what happens. but there is something else going on. will prices are pledging. we global economy appears to be weakening. that has an impact on inflation and peoples inflation expectations. the fed told us that this year inflation would be the key. they would carefully monitor progress towards their inflation target. these recent annulments suggest
that inflation may not come up as much as they thought. not only that, inflation expectations are slipping already. the michigan survey of consumers shows that households are expecting less inflation. they see it all around them. they know that they sued hold up for the list -- they should hold out for the better price. treasury tips market is signaling low inflation expectation. that has to be important to the fed. patient on the timing policy into an environment or both inflation and inflation expectations are falling. , islet: our energy prices that transitory or more permanent facet of what we need to contend with? >> transitory is a long time. this has been going on for 18 months now. it has not stopped its affect on economy will persist for most of 2016. eventually the rate of decline will slow and the impact on inflation will fade away.
but its affect on inflation expectation might not fade away. that has to be important because the anchor his expectation. this may not be transitory as far as inflation expectations are concerned. if people start think that inflation is going to be 1% less than we always thought, then it is going to be harder for the fed to reach the 2% target. people are thinking, i cannot push my prices higher, i cannot get that big of a wage increase, everything ratchets down. scarlet: thank you for joining us today. quick we had to break, a check on where we stand for u.s. stocks. there is 15 months lows. hitting a target that was set on august 25. implosion oil prices that persist. of course, the data showing retail sales and manufacturing not doing so well. the s&p 500 losing 2.85%.
welcome back to bloomberg markets. it is time for the bloomberg business flash. a look at the biggest business stories in the news right now. u.s. manufacturers are being hit by slower economic growth and a strong dollar. factory reduction fell in december for the second straight month. one reason what is automakers turned up fewer vehicles because demand has started to die down. industrial production, which also includes lines and utilities, declined more than forecast.
inflation is still under control. only 2/10 of a percent in december. the big reason was plunging energy costs. for the year, inflation as a whole declined 1%. in ben bernanke warned leaks ofers about before moreears leaks profited more investigation. they said that the fed chairman was very pointed about this coverage which showed access to inside information. that is your business flash update. we need to head back to the market desk where julie hyman has been ticket market -- checking the markets. trying to take a muslim. let's get a look at where we are the moment and we are near the lows of the session. the nasdaq is been leading losses, not only to date on this
year as well. downduncan 11 -- already 11%. of course, we're still in a bull market. that is worth putting up the s&p 500. we are in correction of 10%. but we have not gone down by 20% or more in more than 25 hundred days. take a look at my bloomberg terminal critical back to march this currentugh market bottom. since then, the s&p 500 is still up about what hundred 76%. that is not even on a total return basis. but it is an unusually long bull market that we have been in that 2503 days. it is more than double the average bear market -- bull market if you go back about 88 years. the averages have been 57 months in length, and only to have gone on longer than the current all market. that is just something to point out when you're asking houses.
will the declines be? it is interesting to look at history. something else, in the much shorter term, what has happened to stocks would we have had 1900 over the past year or so. this is from an article on bloomberg news. 1900 we haveelow tended to see bounces in stocks. bounces of around 2.5% on average. we did have a bounce yesterday, but of course there is no guarantee we are going to have that bounce this time when we go below 1900. past performance does not guarantee future results. it does not mean it will be that supports line that we have seen in the past. it is just a pattern that we have been seeing. we'll would break the pattern this time, we will see what happens next week after this long weekend. scarlet: the pattern is set when it comes to buying the debt. one area where people are coming
in. a dramaticre is decline coming to see a spike right back. julie: exactly. that is what has been happening. so the question a lot of people up and asking this week is that by the mentality has fundamentally changed. it merely a technical selling that we have seen thus far this year? scarlet: we'll find out. thank you so much. a great job in all of these charts. there's nothing perspective. we need to talk about financials paid they are one of the worst performing groups today. fargooup and wells declining after releasing their fourth-quarter earnings. low energy prices also weighing on the bottom line. certainly raising concerns about bad loans. what is next for the beleaguered financial sector? we asked the director of research a. revenue fors to these banks it feels like the big banks are running in place. modest numbers for jpmorgan, wells fargo, city revenue
jumped, but you have these one-time items accounted for that. are you hearing from you executives that indicate they have a land for growing the top line in any significant way? >> most banks are expecting growth this year to still be positive. in the single digits. most companies are expecting to see their margins improved slightly. the problem with that is that margins may take a while to improve because it only had one increase, and it certainly seems dim on any fed move anytime soon. the challenge will be on the margin sign. the challenge is going to be on the cost side or cost cuts are going to have to make up the difference on the revenue front. scarlet: cost side, that has been a story for the last five or six years. reducing expenses has been a theme. what is different about their ability to cut costs now versus five years ago when there was a lot more fat to trim? point, but in both
cases the efficiency ratio still have a lot more to follow. they were completely inefficient would you look at 2007, 2008. without structural differences .nd companies while many have made progress, there is a lot more that can happen. we think that the merger environment will be rich this year. scarlet: that would be a smaller banks? >> that is correct. scarlet: banks are building up reserves. we have seen their response to travel sectors what will this cycle look like? >> it is very early. i think the fourth quarter results that are coming out today and most likely in the next two weeks are going to show very modest increases in problem assets and also it will be a iny modest change classified.
the challenge will be when we go into the first and second quarter of this year. low levelng off of a of problem assets. it is the acceleration of those that have investors bothered. i think the challenge to most companies is that they cannot increase reserves quick enough. the energy reserves are rising, that is good news and there's --bably more from weather where that comes from. scarlet: with these would really reserves against commercial and industrial growth can not so much against house growth or consumer loan. what is different in how quickly they can grow? the> i think from commercial and industrial size, great reserves can grow quickly if banks are focused on it. the issue today is that the problems are alone and only increasing slightly. the losses are very low comedies of still reporting levels
cleanup, but most banks can hide behind a low level loss in terms of not losing reserves. we prefer to see management teams not wait and actually get ahead of this. that is going to be an important catalog. scarlet: what investors punished the companies that are more aggressive? >> the game has changed. in the last couple of weeks, as we have seen the fate stocks fall 15% from the increase in rates the 16th of december, that the game has changed to now increasing credit and increasing reserves.-- the market sentiment has really shifted in the past few weeks. you're seeing the lack of information about whether the banks will grow reserves as a main reason why stocks are following the last several days. to the extent that the companies can bill reserves or put more earnings power to do that, that
even if they give some of that up to build reserves, we can still see companies knowing we would make money but during a for sure this year. scarlet: teamwork for joining us today. stick around, because later on today we will be speaking to the cfo of wells fargo. be on the 4:00 p.m. eastern time today. we will be right back with more coverage of the markets of bloomberg architect. ♪ -- on bloomberg market day. ♪
give us your read on what is going on right now and how your -- had how you're getting high calls and explain nation. a the market is adjusting large string of economic data that started last year to show that the u.s. economy is really decelerating. the likelihood of further acceleration is very slim given that the fed tightening cycle has officially begun. , see ancluding ourselves policy mistake. thettle too much of negative pieces of information are piling up all at once. first markets are the leading indicator of this is the typically are. from there we typically see no good signs at all. we see tightening and lending standards, and it will be very interesting to see with the next
release of the fed survey will show. scarlet: you said the pain in the credit market started with high-yield energy, but this is justified in the other sectors? should the spread be higher? it becomes justified when you talk about contagion. if you start budgeting for losses in certain sectors, as a fake or a lender, you also reduce your credit for everybody else . it started energy, but became dollar strength, then it became all exports of all industrial sectors, and then it became the dollar denominated debt in emerging markets, especially asia and the commodity producers and it really goes from asset , and then becomes a self the filling prophecy. cause the possibility of
risk financing. most people do not expect opec to let will fall to $20 a barrel or did they see china's mishandling of the economy. there was a lot of assumptions that are big being challenged and even proven wrong right now. >> that is an extremely important point. are people this time around shocked by the opec decision. they are changed so dramatically, you do not know how to value commodities, in this case energy in particular. you're being told that there is not a supply response for falling prices. the supply we are likely to see is in lower america, but it's taking time. scarlet: so what do you tell your investors that they are doing with their money? >> we entered the year around november and thanksgiving him
and started seeing some cautiousness. we entered a year slightly underweight risk of a slightly underweight equities. we still prefer european equities over u.s. equities, euro hedge. we are out of credit markets. we also took the part -- and cause on the long dollar trade. there are some sites, especially with the yuan that trade is running out of steam. scarlet: to live for joining us today. you for joining us today. another quick check of where we stand in the financial markets. let's look at stocks right now. the s&p down, the nasdaq down by 2% right now. ♪ we live in a pick and choose world.
day. the dow, s&p, nasdaq all down. the s&p is down by about 2.5 percent. the dow is down similarly. the nasdaq is down by the most. let me give you some superlatives on the market for today. the dow and s&p are felling the most since this past august. august is also the month for the nasdaq, but not since 2011. a lot of superlative's here. i want to show you what the sectors are that are falling. board, you can see that all 10 sectors of the s&p are down. information technology is the most down, about 3.4%. energy is down about 3.2%, but they have been flip-flopping the whole day. it makes sense that energy is down the most because of what is happening with oil. let's take a look at what exactly is happening with oil. oil is down by more