tv Bloomberg Markets Bloomberg January 22, 2016 2:00pm-3:01pm EST
from bloomberg's world headquarters in new york, good afternoon, i'm david bureau. .- david gura the s&p 500 headed for its first weekly gain this year. oil has seen the biggest rally in seven years, but a measure of volatility in crude futures is also a multiyear high. joining me to make sense of all this market volatility is mike buchanan, one of the world's biggest fixed income managers. let's head to the markets desk with ramy inocencio and a look at the latest. ramy: markets are headed back up to such an highs were we were earlier this morning. a second look at the numbers. nearly 2% higher for the s&p 500, the dow is up by 1.25%, the nasdaq up by 2.5%. looking at the dow, we had been out by 16 135, now we are not too far off for that, climbing
back up near to where we were early this morning. for the s&p 500, it was as high as 1906, just a tad under that my just under two points. i will show you the s&p sector held all 10 sectors right now are in the green. no surprise as we've been talking about today as well as yesterday. energy is up by nearly 3.9%. if you have to point out that earlier today, and energies session hi, we were up by almost 4.5%. as closely followed by information technology, 2.4% and telecoms, up by 2.2%. with that said, it's not all green and positive for everything out there. let's take a look at some diversified companies as well as the railroads. general electric right now is down by 1.5%. the reason here is because it missed its q4 sales target. billion. at $33.8 that's versus an estimate of
$35.9 billion. union pacific going to the rails down by 2.9%. going off the rails, it's feeling that hurt after yesterday when it was seeing falling commodity shipments, about 20% down in the past quarter. just taking a look at the s&p 500 railroads index, that's down by 1.6%. interestingly, it's been down every single day this week. your off the rails. are all railroads down today? ramy: not all railroads, and that's ks you. that's kansas city southern. up by 3.5%. you can see that it is near its session lows for today. the reason for this is because of q4 earnings coming in way above estimates. the minute $1.23 versus an estimate of $1.10. interestingly, carload volume's similarly with the like of you and pnc a sex are down 2%, year
on year. before a throw back to you, let's take a quick look at the vti crude. it's up right now, that's a session high, ladies and gentlemen, up nearly 8% today. this is the best one-day rally since august. and david, it is best today rally since 2009. david: that's ramy inocencio at the markets desk. mark often has more from the news desk. mark: speaking of off the rails and off the charts, forecasters promising it will be a storm for the record books. a blizzard is taking aim at the east coast of the united states. it may drop more than two feet of snow on washington. new york may it up to a foot by tomorrow. at least 50 million people could be affected. already, air travel has become a nightmare. almost 5000 flights of been canceled for today and tomorrow. there is a report that russian president vladimir putin asked bashar al-assad to step down. according to the financial times, president putin said the
head of dust since the head of military intelligence to deliver the message. president assad angrily refused. vladimir putin is bashar al-assad's most powerful protector. the u.s. has seen his removal as a precondition for ending the fighting in syria. david cameron may reach a deal in the european union . that's according to the irish per minister. the main sticking point is the insistence that the u.k. the allowed to restrict welfare payments to eu residents that move therefore. he was military has found human remains of the arizona crash site where a student pilot from taiwan went down. that crash happened thursday morning as the pilot an instructor in an f-16 were engaged in air to air combat training at luke air force base. day, froms 24 hours a the bloomberg first word desk, i mark barton. david, back to you. david: a diversity of forecast
from top investors. george soros's warning a china hard landing will deepen the slump in stocks. on the other hand, larry think saying he does not expect a bear market. isi think the market still -- may have some digestion problems. i think over the course of the next year, we will see a higher market, global gdp will be around 3%. maybe not as high as the imf, but i'm not that worried. they are right is the $7 trillion question. only january 22. joining me is mike began, from western asset management which has $446 billion under management. let me start a lioness on the bloomberg terminal about central bankers being just one central bankers thought they were headed out, they are getting dragged back in. we are seeing a lot of a, native policy everywhere except the u.s..
to remove are serving accommodation very carefully. and there's no telling what they're going to follow through with the three or four rate hikes they are indicating now. the world, you are right, is basically an accommodation mode. and certainly, given the volatility, they are very nervous right now. plot: we saw on the dot the expectation among fed policymakers that there would be for increases this year. what are you thinking about how many will get and how big they will be? mike: we don't think we will get four. the market is tell you it's about one. we are more optimistic, maybe two or three, but keep in mind, if that does develop, you get three or more, it's going to be indicative of a very, very good economy. and risk assets are going to be doing very well with that backdrop. david: a month ago you were on bloomberg tv talking about high-yield as third avenues collapsed and you said you excited withdrawals to be normal. however things been -- how have
things been? aggressive than we anticipated, but not out of the realm of the scenario of expectations that we had. if you look at the market, i think it tells you that you had some for selling, quite a bit of pressure in high-yield. from our standpoint, we like the market back then. we like it even more now. we think there is a real misunderstanding in terms of the fundamentals of the market versus the valuations. andre still buyers, probably even more aggressive buyers now. a great ofhere attractiveness to corporate bonds then government bonds? mike: you have to look at them differently. i think government bonds in particular, treasuries play a great role. if you look at what they do to the other risks in your portfolio, it's a great diversify her. if you have a big credit, bet on it. if you have a lot of high-yield in your portfolio, you can offset that was some duration.
if one of them is working, chances are the other isn't. but they are a great way to have a diversified strategy in your portfolio. david: you look your portfolio, in light of all the we've seen, i don't even tell you how volatile it has been. have you reevaluated anything light of what we've seen? david: i would say at western, we take a longer-term view. obviously, we are a technology the change or shift in market sentiment. we are seeing what that does to markets. but all the investments that we make are always predicated on fundamentals, on a longer-term view. so if anything, given the change in valuations, it's made us a little more optimistic. but i would say from a portfolio standpoint, we still have roughly the same positions on that we did. david: how worrying for you was we've seen in china? some really rocky times. how worrisome was that? mike: indirectly, is not that
much of a worry. in the u.s. economy, not too much is coordinated with china. it does affect sentiment. that's the concerning thing, for sure. it does affect emerging markets. i think you have to be aware of what's going on in china. but you do have to put it in perspective. and you do have to remember that they are slowing down, for sure. we are talking pretty impressive growth. we think the case for a soft landing is still the right case. washing it very closely, concern, but i wouldn't say we are panicked. david: you mentioned sentiment, something that striving energy prices and oil prices. we are seeing an uptick there. talk about how that played with a high-yield in credit markets? sentiment could be worse up until a couple of days ago when we started to get this reversal in oil for high-yield energy bonds. that, in our opinion, has created this unique opportunity.
we at some of the fundamentals. we look at the company's abilities to make it through a prolonged time of low crude oil pricing. they have good liquidity. not in all cases. you're going to see some bankruptcies, for sure. that basically the entire market has been looked over. people just a lot of have that in their portfolio. i think there are some real retractor return opportunities within the high-yield energy space, again, for a long-term investor with able time horizons. david: products that are below investment-grade, how are you regarding those today? mike: that would define all high-yield products. are you talking specifically about close and funds? i think they are real interesting. if you like what i'm saying about high-yield, you can pick those up at a discount.
you are getting, in our opinion, cheap asset class at a discount. it's not going to be vulnerable to outflows. i think for investors, that's a pretty interesting investment vehicle to look at. david: that's mike began in joining me on set -- mike buchanan joining me. has a hard landing for china's economy is partly unavoidable. more from his exclusive interview. it's one of the most read stories in the bloomberg terminal, the saudi debt secrets the u.s. treasury has kept for decades. how much of america's debt to saudi arabia own? comeback, and the commodities closes coming up. ♪
david: welcome back to "bloomberg markets." bloombergfor the business flash, looking at the biggest business stories in the news. american express shares are down the most since 2009 today. fourth quarter profit fell 38%. the drop in the stock price has become costly to berkshire hathaway. its stake is down about $1 billion today. tim cook met with pope francis today at the vatican. it's unclear what the two men discussed. the associated press says he presented the pontiff with a check. no details were provided. the meeting comes a week after the pope met with the holding company that owns google. greece's sovereignty rating is up to be minus. the s&p says it's prognosis for the greek economy is one more year of essentially flat growth,
followed by a robust recovery. and that is the bloomberg business flash. ramy inocencio is a check on company movers. all of them getting a little bit of a bump. dizzy shares are up by 3.2%. pretty much at session highs for most of the day. this is the biggest jump in the past five weeks. this is after barons comes out and says don't be bashful, it's time to buy the stock. they're saying the stock offers compelling value because shares are oversold, ever since november. share prices have fallen by about 18% to near a 52-week low. they're saying that now is the time to buy into the house of the mouse. moving on from the mouse to the cat. the caterpillar in fact. byerpillar shares are up 2.6%. you can see they are off of their session highs from earlier today.
i had been as high as 4.8%. this is after baird is saying caterpillar is among its candidates it sees foreign earning balance. it says the industrial and machinery fall off that we've seen for the past few weeks has been overstated, and it's now time to buy into that. switching over to attack, have a couple there for you. qualcomm is getting upgraded today to outperform to market perform at northland. we are at about session highs right now, up 1.7%. the analysts and northland say the company's 2016 cops are going to be better, and there's going to be an end to licensing issues it had over in china. it has a price target of $62 and $.50. right now, we are just under $48 there. j.d..com, the online direct sales company in china is up by about 1.9%. it was upgraded to buy from neutral.
it's rising the most in a week. david: ramy inocencio with the markets desk. a stellar lineup of guests at the world economic forum in switzerland. bloomberg's francine lacqua spoke with george soros. he says he seeing conditions the remind him of 2008. george: in 2008, we are repeating. it was a time of financial crisis. and the bear market. you have the same conditions today. source of this equilibrium is different. was the the root cause subprime crisis in america. now, the root cause is basically china. it's not comparable. francine: china because growth is below what we think?
poor because they are importing deflation? george: it's deflation and over indebtedness. the chinese economy. debt is downial 300%. and maybe actually it might be account0% to take into the external debts. it is serious. and the chinese left it too long. changeover in the growth model they have to adopt from investments and export led to domestic lead.
hard landing is practically unavoidable. francine: you're looking at a financial crisis that would start in china when authorities couldn't deal with it. --rge: they are basically the key issue is deflation. it's a condition that we are not used to. none of us have lived in a deflationary environment. the last time we had that was in the 1930's. while i was around, i was not yet engaged in commodities. we just don't know how to handle it. it's a different environment. but now, we have to face it. francine: on china, do you expect a hard landing? george: it has happened.
it, justxpecting observing it. but china can manage it. , it has resources greater latitude in choosing policies than most other countries. because it has over three children dollars -- $3 trillion in reserves. , they have a way of ,nflicting their problems passing it on to the rest of the world. they can handle it, even if they don't get the transition right. continue forainly two or three years on their own course. effect on the rest of
the world -- and that is actually mainly deflation. sources ofhe deflation -- in that basically three major root causes. one is china, the other one is oil and raw material prices. the third is competitive .evaluation you have all three. david: that was george soros talking with francine lacqua. breaking about compensation at goldman sachs. has ordered $23 million last year, that is set to include $2 million in salary, $6.3 million in bonus. heparing to the year before, was awarded $24 million. this is "bloomberg markets." more after the break. ♪
david: welcome back to "bloomberg markets." signs of strain of rising concerns over saudi arabia's outside position in the world largest and most important bond market. plummeting oil markets are squeezing the for exchange reserves. just how much of america's debt the saudi arabia alone? -- does the saudi arabia alone? -- own? >> good question. we don't know. the treasury department didn't tell us. , sinceasury department the 1970's, has been collecting data through primary dealers and banks about how much each part of the country owns to us treasuries. countries,hese, 100 saudi arabia and 14 other oil
producers are lumped in together in a group. with interstate about that group is -- there are actual several countries and that group. but just not saudi arabia. have the world's third biggest foreign exchange. the short answer is, we don't know. david: is there a push to learn more? is there a push for more transparency? andrea: there's definitely approach for transparency. to theen talking treasury officials current and for more. it's something they been doing every month for 40 years. no one really asks why do saudi arabia have special permission to not have their individual holdings being disclosed, but no
one asks that question. describe the pain that saudi arabia is under right now? andrea: three fourths of its revenue is an oil. that's down 70%. to give out free benefits and free health care and more. they are waging the war in yemen. so what saudi arabia is doing is liquidating all of the risky assets. and then going into treasuries or other short-term. david: andrea wong, we appreciate it. this is "bloomberg markets." ♪
let's start with the headlines. mark crumpton has them at the markets desk. mark: some 5000 flights have already been canceled ahead of today's big snowstorm. all flights into and out of philadelphia international airport have been canceled for saturday, when blizzard conditions are expected to be in full swing. forecasters say the storm could be one of the 10 worst ever to hit the eastern seaboard. the world was on the cusp of a conflict with iran before the nuclear deal was signed. telltary kerry: i cannot you how many leaders, when i traveled through certain areas, said you have to bomb it. that was the way to solve this problem. now because of the joint action plan, we have closed iran's path to building a bomb.
mark: meanwhile, secretary kerry, blamed bashar al-assad -- secretary kerry blamed bashar al-assad for causing what he called the worst humanitarian disaster of our time. two police officers have been leave on administrative because of a video. pleaded not guilty to the shooting four months ago. the city has been on edge since the video was released. to be no political motivation behind the recent abduction of three americans in baghdad. they were taken by criminal gangs and there has been no demand for ransom. meanwhile, the u.s. embassy in baghdad has only confirmed that an unspecified number of americans is missing.
republican presidential candidate jeb bush has enlisted his mom. in a new ad, former first lady barbara bush praises her son's leadership skills and says the public can trust him. george w. bush will soon join him on the campaign trail. global news 24 hours a day from the bloomberg first word desk. i'm mark crumpton. back to you. david: let's take a look at some of today's biggest movers. for its biggest weekly increase since october. prices are now closing at two dollars a pound. oil had its fifth straight decline today. reaction toittle the baker hughes count. the world economic forum is underway and off those. many oil producers are congregating there and they agree -- underway in
davos. many oil producers are congregating there and they agree that things cannot continue this way much longer. >> the prices will be justified any longer. there is an oil revolution. i would say over the medium-term, the fundamentals justify oil prices around $50-$60. it's good news for consumers. for producers, they can deal with it. david: i want to bring in a man of experience in the energy sector. let's start with these producers. under such pressure, no secret. how long can this last? how long will this strain go on? >> it will last until we get back to development economics. we think the key to 2016 will be
to watch non-opec production. non-opec production is going to decline about 700,000 barrels a day, we think. saw a price rout of the last six to eight weeks. even see production curtail more than that. seed: are we starting to the results of reduction in capital play out in the market? >> there was so much momentum going from 2014-20 15, but by the time he got to the second half of 2015, though mentum had been lot -- the momentum had lost. production just cannot be sustained when you cut off capital that much. david: looking at volatility, iran was a big factor, the sanctions, a lot of questions
and concerns about what that means for the global oil market. thewe starting to get past stage of wondering what effect this is going to have an beginning to see, in fact, what effect it's going to have? >> i think the phase we are going into now is how much. the question i think the market was asking vis-a-vis iran was when does the oil return and how much oil returns? the when is now. the question is how much. that's where we get a little variation. it will be very important to fast february to see how they can load and push out cargo. can their infrastructure sustain see in the that we february and march timeframe? to thelet me circle back rig's. there has been a steady decline in the rig count from year-to-year. what do you get from today's reading? >> it confirms what a lot of our
analysis is showing. oil doesn't of justify drilling, you don't need the rigs. a lot of those rick scott fleshed out over the last year. ,he rig count being down now another rig just says that the producers are sort of saying we cannot drill in this environment. we need to see stronger prices before we can put more rigs and more people back to work. had a bant year, we on u.s. crude oil exports being lifted. play out,t going to as you see it? >> in the near term, we don't see it having much of an impact. it doesn't justify the shipping abenomics of -- economics of sending u.s. crude oil to another market.
we have some u.s. crude prices on the gulf coast that are higher than international prices. it doesn't make commercial sense. someink we will see markets move because people want to build their international supply chains. when oil prices recover and we start putting pressure on differentials to widen out, that is when we think we will start to see commercial volumes of u.s. exports flowing to the rest of the world. david: thank you, skip. with today's gains, crude is still down significantly over the last two years. remember when it traded over $100 a barrel? eric schatzker and stephanie ruhle talked about this with goldman sachs president. >> if you look at the fundamental supply demand
picture, we were building supply faster than we were growing demand. ultimately, when that happens, you have to do something with the additional supply that has been built. we have been storing it. we have run out of easy storage locations. we are having to price in harder to store locations, more expensive, and we are going to get to the most expensive storage locations, which is literally floating storage. parking at offshore. respects, this is the simplest market to figure out because you just have to figure out what is being produced every day, what is being consumed every day, and where is the difference going? stephanie: i guess i don't understand producers. why don't they get their heads around this at some point? >> what is ultimately going to happen is that we are going to
get the price of crude oil to a low enough number for a long enough time that we will see a decline in production and the equation will start to rebalance itself. if you look at these super cycles in commodities, that's exactly what happens. stephanie: how long will that take? >> none of us know. none of us know approximately. we continue to see demand growth. if you look at demand growth year over year, it is not spectacular, but we saw demand growth in the fourth quarter. stephanie: demand is nowhere near supply. >> true. i think everyone you talk to will tell you they believe that supply is starting to diminish. there is a natural depletion curve in oil production. --are seeing national natural depletion. this will run its course. it has every other cycle and i
guarantee you it will this cycle. k: how many energy companies are you advising right now? >> many. : how many would you tell that we are weeks away from $30 crude? >> and free come -- every company has its own unique mix of circumstances. how much gas to they produce? what other products do they produce? are they single product dependent? are they multiproduct to panic? do they have single contract rigs or multi-contract rigs? many factors go into the equation. to get am just dying sense of how close we are to the capitulation point where production starts to get shut in because companies are not toting the cash flow needed
continue operations. think it's the $20 range, which we wrote about months ago. we were way ahead of the curve. we believe oil could get down to a $20 level. this could cause a reaction where the barrel would start having enough negative cash flow that you could see production decline. you're going to see some companies need to restructure ,heir debt, issue equity complete mergers. stephanie: you think we will have a big m&a year in that space? from a banking perspective, there is a lot to do now. >> we are not just talking about oil. we are talking about what is going on in copper and coal. they are all depressed in price. for the natural resources sector, there is going to be a lot of corporate activity this year.
david: goldman sachs president speaking to erik schatzker and stephanie ruhle. coming up, so much for the bromance between donald trump and ted cruz. going after his rival on immigration. coming up at the top of the hour, the cio of goldman sachs private wealth management. that's to come on bloomberg markets after the break. ♪
business flash, and a look at some of the biggest business stories in the news right now. earned $33 million -- $23 million -- goldman sachs ceo earned 23 million dollars in salary and bonuses for 2015. say drillingists global contributes to warming. united airlines may finally be headed toward labor stability. the carrier has approved a contract extension that includes a pay hike. to combine struggled the work force after its merger with continental. >> looking at stocks right now
earnings laggards. let's take a look first at american express. american express, you can see for most of the day as we have been reporting has been strengthening the bottom. we are pretty much at session 12.75%.wn by about fourth-quarter profit fell. it lost its deal with cosco. another reason is the stronger dollar. natural gas.n is they are operating in a new reality, looking ahead and saying they want to cut costs by about $1 billion by the end of the year. another company following is in the commodities sector. nearly 10%,
scraping the bottom. it has fallen by as much as 12% just before 11:00 a.m. freeport is underperforming all of its copper here's -- peers. it does report earnings on january 26. analysts say they suspect it will see a fifth quarterly loss in a row. also, mason falling by about 2.4%. it has been down as much as 6.8%. this is the lowest it has fallen since august. a huge turnaround for legg mason. david: thank you. the conservative establishment is making its case against donald trump, launching a new attack against the front runner. the trump campaign, for its
part, is launching its first attack ad, against ted cruz. is johnook at it, here heilemann from all due respect. john: whether you are with him or against him, you have to a great has run campaign. there were only a few moments in which he was befuddled. his interview about integration was one of the rare moments when he was not on cue. trump has honed in on that moment and made the most of it. are trying to hit ted cruz hard on an issue that matters extraordinarily in iowa. this is not only trump's first
negative ad, it is a big buy for a negative ad in iowa. he can kill ted cruz in iowa, he is in a good position to win iowa, south carolina, new hampshire, and be off to the races. there is a going for the jugular quality to this. david: the national review came out with an issue devoted to the case against donald trump. they were going to do an interview with cnn, but they have been sidelined. john: the national review says is tob of conservatives stand up for history and yell stop. they are now trying to stand up to donald trump and yell stop. trump is being dismissive, not because there are not good people at the national review and not because these conservatives don't have a point. they all believe what they are saying. , he is many other people
a part of the conservative establishment, not the party establishment. anotherview is establishment wants to attack me? bring it on. though ahead. he likes this. it feeds his image and makes him stronger with the people who already like him. fair to say donald trump is already canceled his subscription. coming up, julianne moore played sarah palin in the movie game change. that airs tonight at 5:00 p.m. ♪
david: welcome back. munster said in a note to investors this morning that he thinks apple could rally 50% by september. he joined bloomberg markets to say why. >> historically, the multiples expand after this kind of march quarter, and the reason's investors are able to look forward to what's coming, and in this case, it would be a larger share buyback at the end of the march quarter, the iphone seven, and calms getting easier at the back half of the year and into 2017. that along with the catalyst gives us the confidence to highlight this going to print neck -- next week. they've it joining us is emily chang. -- david: joining us is emily chang. emily: apple shares are popping today thanks to gene munster.
yes, this is cyclical. there have been a lot of concerns about production cuts for the iphone success and success plus. a number of people have been s and look, -- iphone 6 six s plus. as we move for the iphone seven release in september, jean gene munster is expecting things to get better. that does not take away from the fact that apple is very reliant on the iphone. 66% of their revenues come from the iphone alone. down the line, they will have to consider diversifying their revenue per for leo -- portfolio, but for the year, munster thinks the bad news is already priced in. david: talk about the important the iphone.h are on i imagine competing search engines would like that space.
talk about the importance of getting that contract. emily: i think i probably read that 20 or 30 searches in search bar every day. it sounds like a lot of money, but it's less span what gene munster would have thought because google actually makes $3 billion on the iphone, so they are paying about a 30% traffic acquisition cost. there have been rumors swirling for years that they are paying 50%, but it shows the link -- lengths google is willing to go. of coarse, google and apple are competitors in the iphone world. apple should be considering when they don't want google on the iphone anymore. but at this point, apple search is not good enough. they are going to have to keep working on the technology. munster says maybe five years out you might see apple taking google off the search engine of
the iphone, but it's still a long way to go. david: i wonder how that revenue model works. when i use that search window, is google getting revenue? emily: it's a confusing. this actually came out in a lawsuit between oracle and google. oracle has been suing google for five years saying google used their job a software to make android and hasn't paid them. software to make android and hasn't paid them. david: thank you very much. coming up in the next hour, the cio of goldman sachs private wealth management. that's coming up next on bloomberg tv. ♪
betty: from bloomberg world headquarters in new york, good afternoon. im betty liu. here is what we are watching at this hour. as investorsrging brace for what it's coming. the major averages on pace for their first weekly advance in 2016. we will speak with goldman sachs private wealth cio. her team just wrote a report saying investors are overstating china's impact. investors are split on whether it is time to buy or s.ll stock we are about an hour away from the close of trade on