tv With All Due Respect Bloomberg January 20, 2016 5:00pm-6:01pm EST
alix: this is a bloomberg market special report. i'm alix steel here with matt miller and scarlet fu. scarlet: a pretty wild day of trading with the dow and nasdaq cutting their losses -- for one point at the nasdaq it went positive. you can see the dow jones still off by 250 points in the s&p 500 .osing 22 points the s&p 500 closing at its lowest since april of 2014. the interesting thing is where we were.
the dow jones was down 565 points at the low of the day and closes only with the loss of 250. alex and i kicked off the trading day together and we saw dow and s&p losses that were down only by 1% and then just started to tumble to the end of the first half hour of trading to 3% and then 4% at the lows of the day. it has been an incredible ride. alix: we had the semi-zend biotech's helping to push things into the green but it was staggering because oil prices have not recovered. it's the worst day in four months and we have seen the correlation between stocks and oil pickup in the last few weeks. pairact they were able to those losses without oil was amazing. probably the most amazing
trade of the day -- the fact oil was down so much but did not go down but equities did. i'm sure at some point we will graph oil and the s&p and we will see they have been very correlated as of late. eight one point was down and two thirds percent. it was an amazing drop for crude and it didn't recover. that wasone thing interesting is the currency market. you didn't see much movement even with the selloff accelerating. it's curious because you would think the euro would react sharply. but it has almost become a safe haven oddly enough. you are just not seeing the currency market lead equities. it's not about interest rates at the moment. it's about oil, the u.n. and china. but i can chart brent versus the smp. looking at the two if you come inside the bloomberg terminal, this was put at around 91% and
when we hit this correlation high, that is when brent broke below $40 a barrel. this is typically 25% according to barclays. so we have seen a big move up with the two of them. is amazing to me is on the right side of that screen, you see the elder distribution. off to theng how far left the distribution is. this means that the move to the downside have been much bigger than the move to the upside. alix: u.s. stocks have surged back to pair the biggest one-day selloff. the nasdaq are racing a 3.7% slide. the s&p clawed its way back from its lowest level in 21 months. scarlet: i am feeling queasy from the way you describe that. our next guest says volatility
should make investors nervous. mohamed el-erian is the chief economic adviser in alliance and the author of "the only game in town" which comes out next week. we want to get your thoughts on today's market action. this attempt at paring our losses and even going into the green which is home to many momentum stocks. what did the failure to hold on to those gains signal to you? mohamed: first and foremost, it was a wild day and it's interesting to see accelerating collapse yielding to a very violent and encouraging bounce. at the end ofat, the day, you step back and you have as many technicals flashing green as you have technicals flashing red. a very uncertain time and i suspect there will be
a lot more volatility. quite a bit of damage was created in the morning and we have not seen the full extent of that. we saw people coming in and it is aeing covered, so fascinating time and it will remain incredibly volatile. the question will always be where is the patient capital right now? does this make sense as far as the underlying fundamentals of the market? the s&p at the end of the session versus earnings and now the s&p indexes coming down -- just the last five years. i did graph that earlier and now over&p is that about 99% that time since june of 2009 than earnings are up more double. is earnings growth going to slow
going forward that is the concern? mohamed: yes. remember we have had massive influence on central banks, including encouraging companies to buy back their stock. major have had distortions in the financial system. part of the point was to push asset prices higher in order to trigger the wealth effect and that in turn triggers higher investment and higher consumption. it is a regime slowly being dismantled. the fed is stepping out of the game and others are having more problems. be careful when you look historically in terms of earnings. the major question is can we navigate a regime change? finished the graph of earnings here. if you want to take at the -- take a look at the terminal now, you can see what earnings look like.
versus theearnings gains in white. this, you canze see it is stark in hindsight, the amount of growth we've seen versus what is happening in stocks. you were saying there is a regime change, but all that we have seen is not new. the selloffs for that we are seeing are not new in the industry. we see hedge funds coming in and buying stocks through etf, so who is selling and where are they going? when oil falls as sharp as it has fallen, it turns sovereign wealth funds from buyers into sellers. they are saving for future generations. the first thing you have done is changed patient capital from buyers into sellers and that is
an important change. second, the higher the volatility goes, the more measured risk in certain models goes up, including an asset allocation, so you get a second sale from trading accounts and institutional investors. is how far does the retail sector start walking ?ut the door the technicals are predictable except with the sovereign wealth fund under significant pressure. sovereign wealth funds having to shut a lot of asset to pay for their own funds. you you consider the work have been doing the last couple of years and your book about the central banks being the only game in town, the federal reserve has been pretty silent during this market selloff. what does that radio silence signal to you and what does it mean in terms of a central bank put? great point. is a
in the past, every time we have had one of the selloffs, within 24 hours, a fed official would come out and say something that calm the market. we have had nothing of the sort this time around. we have nothing from the fed even know it was down 10% year to date at one point. have exitedes we this regime where central bankers have investor banks covered. your book fascinates me in that it seems to be the only game in town as far as stimulate in growth and now it is over. fiscal stimulus would be much more helpful to me laying growth. to get anything out of that in washington, d c we need a set of
structural reforms that reinvigorate growth engines and we need fiscal policy better suited to the reality of the situation. we need to deal with some of that overhang and improve global coordination. these are things that need to happen. if you look in europe and you look in china and you look at japan, the reliance on central banks has been enormous. we are coming to the end of this central-bank policy. so wrap this all together for us -- we need fiscal polity -- fiscal policy and sovereign wealth funds are selling. where does the smart money go now? is it a bit for treasuries or maybe for gold? what is the place? -- what is the play? mohamed: you have heard me say it's better to reduce exposure to the public markets and have a barbell with lots of cash and some illiquid investment.
now we are starting to see selective opportunities in the public markets. if you have been defensively positioned, there are some really good names trading at very low prices. in in anot go in massive way and use up all the risk capital, nor what i buy the market indiscriminately. we have had enormous contagion in the last few weeks that has hit even the good names. mohamed el-erian, thank you for joining us today. his new book comes out next tuesday. it's push ahead to tomorrow's trade -- new zealand markets are open. australia opening in just under 50 minutes and japan opening at 7 p.m. eastern time. china opening at 8:30 eastern time. you are watching bloomberg
matt: this is a bloomberg markets special report. scarlet: i want to recap a wild moves we have seen, specifically with the nasdaq because it did go positive. it had fallen as much as 3.7% and then erased that decline. then we close down 5.25 points. the nasdaq home to so many of those momentum names like
facebook, amazon and google. were names where people betting on stocks rising and that would continue to be the case. that story really had to do with biotech, making a stunning comeback today, crossing into positive territory and off the highs of the session nonetheless. biotech was so beaten up that you expect it's due for some kind of snapback. take a look at philadelphia stocks -- definitely came back to gains today even with other parts of the tech sector related to hardware, you can see the gains 1%, sot two thirds of semi-conductors have recovered quite well. scarlet: let's stay with the tech sector because during this water selloff, we did see one and that was
twitter. at one point, twitter shares sparked as much as 14% on speculation of takeover by news corp.. news corp. has since shot that down saying it is not interested . but if it is a takeover target, who would it be? uply: twitter ended the day 4% but after hitting an all-time low yesterday. joining me now is our bloomberg andributing editor and a venture partner from san diego. i first heard this speculation, i instantly thought myspace. what's the chances news corp. is interested in buying twitter buying twitter? paul: it's not going to happen. strongre some pretty personality conflicts between the two organizations and i don't think rupert and jack see
eye to eye on many things. it would be surprising from a personality point of view, so it's not going to happen. toly: as the stock continues rob, his twitter a takeover target and does it have a target paul: i think the usual suspects they get trotted out, news corporation is somewhat an unusual one. google gets trotted out as does microsoft and apple. that's the right list of people we want to be watching. and we a better idea talked about this last week, some of the chinese capital flowing out of that company coming into the u.s. trying to pick up growth assets in u.s. dollars. i would look to japan and china in particular. , someone who is
brand conscious and has a history of doing in the day in the u.s. those are the places i would be looking. alix: square also had -- emily: square also had a horrible day. their competitor, first data introduced a new card reader that could potentially eat into some of square's market share. how much of this sentiment, is investors are losing faith in jack dorsey as the head of twitter, how much does that carry over to square as well? .aul: i think it does people don't feel reassured by what is happening at twitter. there were some similarly naive calls that jack needs to stand up in the board needs to say something. you can't constantly have them jumping up and saying our share prices should not be going down but it is unclear anything has
changed. in the sense investors have a clear path and this strong direction coming from the top, from jack that investors should feel confident. in that case, the carnage led between the two companies and took them both down. at what point does jack dorsey reassess year and asks if this is the right thing to be doing? onehat is happening at company is affecting the other company because he's the ceo of both, maybe it's not so great an idea? paul: i think that starts to happen now and pragmatically, he has to realize both companies are under immense pressure from capital markets. i think the external pressure is going to become immense and if a bid ever does show up, the temptation to take something
that is 10% or 15% above market is going to be very high, given where we were with twitter stock as recently as three months ago ceo, they don't figure they are is anyone who can manage those companies. emily: what do you think the chances are that he as a founder, and he has then on the job less than six months, what are the chances he can react seller re-user growth or bring products back to a place people are comfortable with? chance.ere is always a it's just wildly unlikely. twitter has had its run of being public company and growth decelerated is not a clear path to user growth. it needs to be part of another company and i don't think it makes it out of 2016 as other company. emily: what about square?
is square a takeover target? paul: i think square is a more problematic takeover target. it's difficult to see how it is and accretive acquisition where twitter is. we are down to five point three price sales ratio. that's a compelling price. kedrosky and i will send back to you -- a pretty elite outlook there on both square and twitter. thank you very much. recapping the markets here, it was a crazy day. the dow finally finishing off 1.5%, but at one point, it was down over 500 points. clawed its way into
reasonable neutral territory but nevertheless, the s&p closing andw its august 2015 low, which was a key technical level. tomorrow's open will be key. been the worst month we have seen a net 40 since february 2009. alix: what was washington's reaction to this turmoil? listen to senate minority leader harry reid. senator reid: the fed is looking at it and we in congress should be calm and wait for some more direction as to what's going to happen in the next few weeks. ♪
steel and matt miller. i want to bring our viewers up-to-date -- this is the intraday chart of the s&p 500. kind of ho-hum, but it was a little bit insane because of how big the losses were. at about 12:30 p.m., the lows of today, the dow jones was off by 565 points. how certainly was not things ended because if you look at how the industry groups fared at the end of the day, health care shares rose and if you look at 24 industry groups, you have not only health care stocks --ing but semi-conduct the show my conducting shares up. -- semiconductor shares up. alix: you have netflix, you have amazon, you have google. it was staggering throughout the day. lost apple in itself has quarter of a trillion dollars in
market value. joe weisenthal put that out on --tter and it has gained out it has gained some of that back. we gained back 47 planes and then down only 22. i have a great chart to show you and every time i put this chart up, people want me to share it with them. message me on the bloomberg and i will share this chart with you. fedsales are the quantitative easing operations. one step at the end is the benchmark industry. you see the benchmark industry rose all the way through those when wet then drop dropped sales and started raising rates. with economic workbench on the bloomberg. the s&p 500 declined as the fed was cutting rates. a lot of people say that's because the fed was reducing
rates. global economy was collapsing. matt: is the fed going to be able to raise rates even in march question mark the future say probably not. developing stocks are actually playing catch-up. andindex up from its index the goldline is the emerging market index down and 35% from its high in april of 2015. and don't forget that it is earnings season and we have forgotten about that. alix: much more coming up after the break. ♪ the only way to get better is to challenge yourself,
to get an edge tomorrow morning? andzealand is already open australia opens in about a half-hour. hong kong opens at 8 p.m.. these are all new york times and then china, 830. what's going on in the new zealand trade? after the ripple in the stock market last night, new zealand opening down about 1%. people will continue to wait for another bout of chinese stimulus. that's the reason markets originally tanked last night. china can dosaying a lot and we expect it to happen any time. then we had the hang seng down. of that was also the destruction of oil and we saw that ripple through the commodity -- the commodity currencies.
you can see the new zealand dollar selling off for most of the day yesterday and then posing a rally into the close. now the new zealand market is open and we see the new zealand dollar holding on to the gains from yesterday. wonder what you this means for the emerging market index which closed down 3%. the superlatives are at its lowest since may 1 of 2009. so we are at multi-year lows for emerging-market stocks. alix: and other global route for markets. the central banks role for this market turmoil. francine lacqua and tom keene harvard economics professor on china, negative interest rates and central banks to flight -- to fight deflation.
guest: it's interesting when china was growing, everyone said they are exporting deflation in making a reading cheap. now they are collapsing. exportinghey deflation or is that an undergraduate fallacy? guest: it always was a fallacy. the central banks are facing these real interest rate and that has driven them down to zero. a have to think about having negative interest rates -- they have to think about having negative interest rates. wacko. still considered >> you would be the first one to do that. this is considered extremely unlikely because the consequences of doing something like that --
>> they are quite measurable. there are different ways to do it. japan could phaseout paper currency. they are thinking about everything. >> larry summers has made a lot of headlines about his secular stagnation and how he links it into confidence within the system. >> let's not forget, at the end of the 1970's, everybody said there will be inflation forever. i do not think we are in
stagnation. >> can central banks fight deflation? in europe?ng does it work if we are not in a financial crisis? they are looking for other instruments like negative interest rates. they are hoping there will be structural reform, fiscal stimulus. >> we mention how new zealand stocks had begun trading and it is a red arrow. day.: today is a brand-new just to recap, it was a bracing day for asian investors. japan tumbling into a bear
market. out thes throwing technical signs that this is a market that is over full. they have dumped out just about everything. strengthening -- the yen strengthening. --toyotal your to the biggest drag on the topix. losses in south korea. the other market i wanted to talk about, it was hong kong. companies in chinese listed. the hong kong china enterprise index is down. acrossthe steep losses
refiners. that oil story is starting to hit home. here is another metric that shows the extent of this market, the percentage of stocks trading slumping to one year lows. these are not great numbers we are seeing. australia also slipping, its lowest finish since july 2013. another index just a whisker away. a lot of weakness from southeast sensitivegion marked to that oil story. >> thank you so much. we look forward to seeing you and angie in about 30 minutes time. , sheis mary callahan or joins bloomberg from th
here is a sense of how far asia has come. here is a snapshot of the revenue breakdown in 2012. if you fast-forward 10 years later, asia has more than doubled the piece of the pie to 13%. we have broken out china on its own to give you a sense. just this month, starbucks announced plans to add 500 more china stores. aiming for 3400 stores in china i the year 2019. the operating margin is lower than that of dunkin' donuts. starbucks is identified opportunities to cut costs in sourcing and the supply chain. a new area of strength for starbucks is k cup sales. you can see how starbucks is
number two right now in dollar share. that put starbucks ahead of keurig.house and not make amay comeback in the near term. starbucks is said to report its first-quarter results tomorrowa l. ix: for more on how earnings are impacting trading, let's bring in all of her running. oliver. we are in earning season, but we forget because we have had so much volatility. oliver: it does not look like it is going any -- away anytime soon. we are going to go back to how things were before the qe age of
the bull market. earnings, one of those opportunities that will bring on more volatility. we are going to see some of the financials report tomorrow. the big three sectors i am looking at this time around, materials and energy. materials, a little bit more nuanced. gottenls earnings have pretty bad, but the valuations are still low. i am curious as to how that will play out. matt: what do you see as far as bank reporting?
we had goldman beating by such a long shot, but then being taken down by the rest of the market. all of the banks that kept their expenses well under control. how do you think financials are going to do? oliver: you need a really big beat to stay on top of the market right now. financials because there is a little bit of a shift. last year, there was a lot of bullishness. widening yield curve and rates going up and some of the litigation issues. there is a question of how much money they are bringing in for trading. there are macro issues with the banks. now, they have been hurting the bad. >> you are also looking at southwest tomorrow. take a look at the hrh function.
describe what this means. oliver: it is pretty interesting. distribution of daily returns for southwest. normally, if you have a perfect distribution, a pretty strong peak. with southwest, it has been a pretty volatile stock. the standard variation is about 2%. pretty big swings. it is down over 20%. the story is complicated. they have pretty high margins, third quarter margins were about to buy 5%. that is typical of what we see in the markets right now. it will be interesting to see
well. the new zealand dollar, an interesting trade as well. saw -- definitely saw a rally. overall, we have seen the currencies get completely crushed. the turning tide claims another victim. this time, it is hong kong. it is not just that which was interesting. we saw the 12 month forwards of the hong kong dollar.
i lost it, tried again. it was a fascinating story. kongan look at the hong twelve-month forward. right around here is where the cap is. this is where it should stop -- and it did not. >> what i think it reflects is the idea of, are people going to be more worried? the level is still below the top end of the band. if the market believes this is under threat, you would expect it to be trading right on. is a strain reflected in the currency. when the china worries started, it created the hong kong dollar
strength. -- it shows help to lend the markets are at the petulant to lend -- are at the moment. chart back tosame 1997 and you have a substantial -- scarlet: and we can do that. were higher, rates even more pressing strain on the market at that point. even then, it remained flat. the mechanistic approach -- matt: i am looking at the onshore-offshore spread. it seems to have tightened. what do you think about forecasts for devaluation throughout 2016?
i've heard people saying, 10%, maybe 15%, and people outside saying more like 50%. >> china is transitioning from a very controlled exchange rate to one that is largely going to be market-driven. the problem the market has, they are anticipating this is some huge change in terms of the direction of the rmb. does not sit with how they are playing it. they have maintained a very stable basket. if your policy idea was less aan a week or currency, -- weaker currency, and you would not be battling against your own currency. could chinese authorities do better in their communication with investors? >> they are not obligated to do
anything -- scarlet: they are not obligated, but it is something to soothe nerves. >> they do not have to. they are managing their way. there are no free lunches and the rmb anymore. alix: we have seen the yen reaching a one-year high. the year of the yen? safe haven of choice now. like safee acting havens for quite different reasons. the yen has been a consistent safe haven. i think we need to be mindful. the euro, though, it is benefiting because it has been used as a fund in -- funding currency for these risk on trades.
i do not think people are looking at euro, gosh, what a wonderful place to be in a period of the global distress. matt: what about the firepower the chinese government still has in order to maintain markets and hold the economy at 7%? should the one place you not be worried about because they have a lot of power sitting around as opposed to the u.s. and europe. >> i would agree. they will have to deliver on it. i am disappointed they have not delivered sooner. we will get a rate cut this quarter. ingredients are coming into play. they have plenty of ammunition. scarlet: what about saudi arabia? expecting some kind of movement
there. saudi arabia has cracked down on speculators. >> when you have a peg under talk about ammunition in china, saudi arabia is in a strong position. big reserves, but they are falling. let's focus on the fact that they are enormous. debt is 2% of gdp. we do not think they will make a choice to break that peg. matt: thank you so much for joining us. ahead towe are pushing the asian open. here is new zealand's live trade right now. they opened at 4:00 p.m. new york time.
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