tv Bloomberg Markets Bloomberg January 27, 2016 10:00am-11:01am EST
welcome to "bloomberg markets." bloomberg world headquarters in new york, good morning. i am betty liu. we are watching this hour, does the fed followed the markets? howstors are waiting to see much turmoil is affecting policy makers when they decide on interest rates today. the end of an era at apple. they're forecasting sales will fall for the first time in more than one decade. shares are seeing their worst trading date since august, the biggest decline. what does that say about our appetite for more iphones? oil is paring back to earlier losses. however, the government grade report -- may report that the supply glut we have seen has gotten worse. let's head to the market desk where julie hyman has making use on the housing markets. julie: it is the sole piece of economic data today before the
fomc decision. became it better than estimated, 544,000 new home sales in december, the annual take. 500,000 was what was estimated. this is up from 490,000 of the prior month. coming in better than had been anticipated. we have seen the lower trended markets overall. there are two culprits, apple and boeing. in particular, they are taking a big chunk out of the dow jones, accounting for about 100 14 points of the dow jones loss. boeing coming out with a forecast that trailed analyst estimates and they will be delivering fewer aircrafts. and you will hear more about apple in a moment with forecasting sales decline for the first time in more than a decade. betty: also, we have a date on oil inquiries coming up. industry trade data coming in last night. they give us a clue.
the american petroleum institute same percent of the left 11 billion barrels of oil the last week, so we will get official word from the u.s. government, coming up. oil is lower by about 2%, not below $70 a barrel, but nearing the level. if you look at some of the other asset classes in advance of the fed statement this afternoon, we have the dollar continuing the decline with the recent downturn in the u.s. currency, now down .4 of 1% going into that statement. let's check on the 10 year yield in advance of that. we are seeing a little climb, so a split between the dollar trade yield, 2.03%,r still at the low level. betty: thank you. forill be watching out those oil numbers. julie hyman at the markets desk. let's check in on bloomberg first news with vonnie quinn. vonnie: thank you.
the long-awaited syrian peace talks will begin friday geneva. negotiations have been held up bya few groups -- held up the groups that will participate. one of russian terms, that the president assad can stay in power until new elections. john kerry could get china to see things his way on north korea. china resisted the tougher sections carry wanted to impose following the nuclear bomb test this month. china has been imposed -- has been opposed and they want to re-taught -- read start talks with the north koreans. according to a new report, as many as one million people from africa, the middle east and asia will seek refuge in europe this year, that is similar to last year's total. the fighting in syria and iraq is supposed to be the main source of refugees. the leaders of the armed group
in oregon that occupied a federal wildlife refuge are now under arrest. stopped the leader and several followers while they were on the way to community leaders. shots were fired and one of the supporters were killed. they want the wildlife refuge turned over to local control. cleveland, six police officers have been fired for their role in the shooting that killed two unarmed lack people. more than 100 shots were fired dr. high-speed chase. one of the officers was acquitted of manslaughter in the case. datel news 24 hours a powered by our 2400 journalists in a more than 150 years barrels around the world. -- news bureaus around the world. making money but sales are dropping and look at how the shares are trading. down almost 5%. sales declined for the first time in a decade.
apple ceo tim cook telling shareholders last night that they are feeling global growth pains. >> we are seeing extreme conditions unlike anything we have experienced before just about everywhere we look. major markets, including brazil, asia,, canada, southeast the eurozone, turkey have all been impacted by slowing economic growth, slowing commodity prices and weakening currencies. tomy: joining me now is giles. how serious is this? tom: those were strong words he used on that call. you hear those words, you see the forecast and the first decline in a decade and it does cause of concern, and that is why you are seeing the stock take a leg down, adding to the 20% in the past six months. on the face, not good, but in cook also said that he is not subscribing to the doom and
gloom scenario and he has singled out china as an area for concern, which has a slow down, and that is affecting demand for the iphone. his view is he will hunker down and invest for the future. he believes in the long run, china really is a place where apple needs to be. they are opening more stores, this yearee more alone. i think the number is going to 40, so he is investing for the future and not retreating and not feeling like this is something more like this is a big seismic shift. betty: there is the question now. have we hit peak sales, smartphone sales? they have gotten everybody that they can get and there is not much more after this? tom: if you wanted a smartphone, you have got it, generally speaking. betty: samsung feeling the same way. stephanie: -- tom: exactly. this september, you will see a
new iphone, iphone 7 or whatever they call it, and over the course of the next several months, hopefully, we will break some, if not all of the news about what the futures will be. remember the most recent version catered.hone was more we talk about how it was not like this revolution, it was not a whole new phone with a lot of new features but apple begs to differ. you see the commercials about how everything is different, but the market not so much. the pressure is on apple to make sure that the iphone 7 coming out later this year has a lot of features that basically make those of us who have are debugging iphone to upgrade or switchover -- who have already bought an iphone to upgrade or switch over to an android. .etty: thank you so much tom giles of bloomberg news. the vander january with treasuries up nearly two
percent this month. futures traders are betting that we will see one rate increase this year. that is way off before that was assumed back in december. later today, brendan greeley is traveling down to d.c. for us here at bloomberg. he will be giving us the take from the fed when they release their statement at 2:00 p.m. consensus?at is the is it one rate increase this year ? brendan: there was a thought last year that this would be a trial balloon hike in december. they would hike once, stand on top, look around, see what they saw and reconsider. strangely, market volatility has complicated the plan, if it was the plan. the fed is not like to move during a period of volatility. even a change in communication would be considered a move, even if nobody expects them to make a rate change. i do not think we are going to see a change in the word rigel,
which is what janet yellen emphasized last month because that would cause more volatility. i'm looking for any language on inflation. before this january and equity markets happen, this was supposed to be the inflation meeting. we got a little more nuanced and what they're looking for and whether expectations are anchored lower. most analysts do not even expect them to change the word gradual today. betty: what about global growth concerns? when we hear anything among policymakers are talking about china or in emerging markets? brendan: in the minutes of last year's or last month's meeting, there were lingering concerns of two things, china and the effect of the strong dollar on the emerging markets. a month has passed and what have we seen? exactly those two problems that may manifest. we will be looking at what the fed just called financial and international markets to see if they add anything to the sentence.
betty: thank you so much. renting greeley, our senior economic correspondent ndc -- in d.c. he will be with us when the fed statement comes out. breaking news in london, five of the six brokers in that library trial have been acquitted by a jury in london. -- in that libor trial have been acquitted by a jury in london. they are free after the four-month long case. the london jury has acquitted five of six brokers in this libor trial and they are deliberating the case against one icap broker. we will continue to get back on the set with the impact of wall street. i will sit down with tomm, next. ♪
betty: good morning and welcome back to "bloomberg markets." financials have had it rough since december. anyone thinking a rate rise would be good for bank earnings was caught flat-footed since the fed raised rates. s&p 500 financials the connecticut commodities for the biggest slide among 10 sectors. the index has tumbled 11% this year, putting it on track for the worst month in more than four years. also, the bank index is now in a bear market. down over 20% from their high back in july. it was almost three decades in industry, thomas michaud joins me now with more. we were just saying that this has turned out like nothing like what we thought. we do not expect that
this january. the market has gotten their he cautious about to real events with regard to the banking industry. number one, are we going to get lower for longer? i heard your segment earlier that the markets may be looking for only 125 point asus increase. the banking industry is not built for near zero interest rates, so the banking industry will improve as rates improve. betty: but you have to be built for that for the last eight years. thomas: you mentioned july, i think that was the expectation for a more progressive fed and they were ranked more in the bank stock so number one, we are getting the expectation for higher rates coming out of the group. the second is the question of the global slowdown in energy and how far it will go, and is it going to be a credit moment for the banking industry? those are the concerns. betty: what do you think? you think energy is overblown? andas: we think credit
energy are overblown. this week, i think we did one of the most important studies in a long time. we did our own stress test on over 200 banking companies. we took all the bogeyman of the saw no moreet, we increases, we increased credit cost and provisions with down growth expectations for revenue and loans. what we came up with was a 15% to 20% decline in earnings estimates. that is an earnings moment that is not a balance sheet moment. when analysts talk about this possibly being a 2000 eight, that was a balance sheet moment where there was more credibility at stake. the industry has come a long way. they have more capital today than they have had in 70 years. much better starting point. betty: less leverage, or capital, but given the stress scenario, maybe that is being traced in with financials? is thatat least my view one of the best strategies i
have seen work in my career is when you buy the trophies on sale. there are plenty trophy banking cut -- companies on sale and if you are a long-term investor, now is a good time to be looking at those stocks. betty: you mentioned energy. a lot of people worried about energy credit and jamie dimon talked about that a few weeks ago. i went to play that. >> energy is not that large relative to jpmorgan and chase. we are not worried about the big oil companies. these are mostly small ones. sort ofold these things start from small players and then in fact the rest? thomas: it is very hard to think we will not have credit issues in the energy market. you can look so many different places for that, the price of oil, the high-yield market, the growth of classified assets in the banking industry. the question is, what is the industry prepared for? comments jamie dimon's on jpmorgan's earnings was a sign of strength with energy.
only 2% of their loan portfolio, over half the credits are investment grade, they have plenty of capital to deal with it. betty: for now, right? what if we are in the same situation when you from now? thomas: i think the question is, could it get worse? absolutely. and it could become more expensive, so what is the penalty and cost of it getting a lot more expensive? we think that a lot of that is already priced in with many of the stocks, at least for the biggest banks. if you are a regional bank, that is -- in the oil patch, that is a different story because you would have much more concentration issues and the market growth aspect you need to talk about, plus, we don't have an aggressive fed raising rates which is helpful. of issuesa multitude for the regional banks, but for the biggest, they are diversified with plenty of capital. i think what it will do, we might be cutting earning estimates because of the, but we will not see big banks raising capital or having any accounts
that are nervous. betty: what about the capital market concerns? where do you see european banks in one year from now on wall street? areas: european banks different story. the thing about the european banks is there so concentrated, so big, and the whole global effort is to put in place capital constraints that encourages them to be smaller. you are seeing it with a lot of asset sales. my own expectation is that the big universal banks, big investment banks everyone knows, they will continue to be smaller, divest. betty: i was walking by the deutsche bank office and that is good real estate to sell. states is theited largest economy and if you want to be a global economy, they may not lead but they have to be smaller. the american banks are on the top of the list and they will continue to be. betty: i want to bring up this one chart.
i want to read the rate, because you were talking about being priced in, three have to s&p 500 financial chart? for the last three years, they have kind of been like trading in the range and i think part of it is the anticipation that things will change eventually and the fed will raise rates, and everyone is hovering, ready to buy banks right when they raise rates and when that happens -- and when that happened, we fell up a cliff. betty: it is dramatic, -- thomas: it is dramatic, a double whammy. you are having an inflection point where provisions will start being higher than the charge off. i think that is what is being baked 10. we have eight of the 24 banks that now trade act or below values. i think that is a very cautious stance i investors. the question is what is right? i think the market is in the process of figuring it out. betty: good to see you. thank you for stopping by. the seat -- the ceo of kbw.
betty: welcome back. i am ready luke. let's get a check on how the markets are trading, which we are continuing to sink near our low of the session. tech, no surprise, and energy the big sectors reading lower. the dow jones at this moment is experiencing their 14th 100 day -- 100 point move of the a, so a big swing in the market. when the bonds of mexican phone record lowank to a
in march, most investors ran .ast, but not bct securities when the note was tumbling, she argued that debt was worth the wait and now she is vindicated and they have returned 36 percent since then though inm march. now to joins us explain. the story was popular at bloomberg and also, once in a while, we like to highlight who makes the contrarian trade and how they won it. what made you stay with this company that was basically getting trashed in mexico? mariela: thank you. it is an honor to be here. we reason was because believed in the story parried it began with the reform. or 2020 secured bonds came from a restructuring. camehen the talk reform
axtel represented 1% of the revenue, it was tiny but the number two player. x being theme dominant, but regulation came in and it was a monopoly essentially. mariela: right. colors that wee focused on, one is the interconnection player, which is a large portion of the cost of solar -- players. plate inly saw that their fiscal year 2015 earnings. and overe down 50% in year basis, so that is significant. even though they were going up, there were doing well on that end. secondly, it opened up the door to foreign ownership. an example of how that could play out.
that being at&t when they came nextel, so brought that we got through his next? who is the next player to benefit from the reform? that axtel was the one. betty: bond was down 50% or so and everybody was exiting, and there was no reason why. we spoke to management and there was a general selloff in the market. the company remained intact. betty: eventually, you are indicated because out the cayman. mariela: out the cayman on october 1. betty: they bought the company? mariela: yes. they were skeptics out there, but we believed that the reform pointed at the reform to have these types of transactions that saw us through. they will came in,
be 51% owners of the company, so it changes bonds, and we rely, that will not happen. and then you bring logic into the equation with investment-grade owner coming in , and you have -- they will probably be operated once the merger goes through. betty: and the mexican phone market is a big opportunity for flowing -- for foreign investors. thank you so much. still ahead, we are talking oil prices, crude inventories will be out in just a few minutes. ♪
we are expecting a build up here. i'm looking on the bloomberg terminal at the screen with almost 4 million barrels that will be heading to our markets. julie hyman is standing by. this government industry report last night from the american petroleum institute and it looks like it will be bigger than anticipated. it came in at 8.4 million barrels -- about half of that is what analysts were anticipating. although the bloomberg survey of users found that there was a split between analysts and bloomberg users. we are seeing inventory in by 71,000s declining barrels, that is a bigger drop than was anticipated. bigger gaping at a in the gasoline inventory. declining by 4.1 million
barrels. a little bit of a disconnect between crude and oil. the barrel does tend to take a little bit of time to shake out as investors look at the different data points to try to figure out oil prices. if you look at wti and brent, we have been seeing that decline. brent recently went positive. see, once again we are bouncing around. that has been one of the big market stories that we have been watching. it is down 16.5%.
speaking of oil stocks, take a look at my bloomberg terminal. this thirdoint to straight january that we have seen a decline. company --tional oil look at how they are trading. shell is not declining as much. exxon is down 1.3%. betty: we will watch this. so far, not a huge reaction. we will keep watching oil prices. that was julie hyman. let's check in with the first word news with vonnie quinn. vonnie: thank you. the supreme court has announced the power plan. dozen states want the epa plan put on hold.
it would use more renewable resources including wind power. republican presidential front-runner donald trump says he will skip thursday's debate. fox news is holding the debate. instead, he says he will be at a fundraiser for veterans. with all due respect will be live from iowa all this week ahead of the iowa caucuses. coverage right here on bloomberg television at 5:00 eastern. and in washington, president obama is making with bernie sanders at the white house. the meeting comes after the president lavished hillary clinton with praise. that was during an interview with politico this week. meeting has been scheduled for sometime. in new orleans, the fire chief says the danger of a building collapse is complicating the
fire effort. the fire had spread. the six alarm fire was first reported on canal street. the as histes district from the french quarters. no injuries have been reported. the affluenza teenager is headed back. he has dropped the newport haitian appeal and will face charges. and he were detained in mexico last month. he used the affluenza defense for a drunk driving accident. global news 24 hours a day. i am vonnie quinn. betty: thank you. job,than five years on the tim cook is still on the hunt for the next big thing. apple products line is maturing but the globe -- the growth is slowing. the apple watch -- in
yesterday's call, he hinted at one possible new partner. reality,ms of virtual no, i don't think it is an edge. it is really cool and it has some interesting applications. betty: it's cool, it's not the x iphone. we are joined now by michael wolf. he previously served as the president of mtv network. tim cook wasn't prompted on this but a lot of executives don't have anything new to say. if they don't have anything else to say they talk about virtual reality. michael: it is quite a ways off and the main application is for gaming. and what is interesting about trying tohat they are
change the narrative on their business. they are saying one billion devices -- doing double counting. people who are using more than one device. betty: good point. michael: they are also focusing on the services that those people have with those devices. whether it is music or video. betty: or payment. michael: so they are trying to say that they are not just a hardware company. betty: but hardware makes so much money. analyst who noted that for every iphone they sell, they make $300 in profit. 60,000 applemake pay payments in order to make $100 in profits. michael: right. and they are trying to change the narrative but their hardware
business will be there for a long time. part of this is that the large -- given the size of this company, what has to happen for them to continue to grow? so yes, the rate of growth is declining that they will still be growing at the size of another fortune 500 company. betty: couldn't you have seen this narrative five years ago? michael: if you knew there would come a point when the market was iphones. with you get to the point where there is a next great iteration. the five, the sex and 77, they are not that much better. six and the the seven, they are not that much better. betty: or that much different.
michael: the challenge is, they have a massive base of users but the user base is not growing and they are not able to advertise because they really only have one advertising units which is inside of a stream. so they are trying to innovate. they are putting video into the stream. they are talking about increasing the size of the tweets. but i think it will be a while because it is still an important part of many people's lives. and the same as apple, they are not generating a new product. betty: did they go to market to early? michael: it is possible. betty: before they figured out the monetization model? michael: the market was excited about them. but the challenge is that these tech companies are in the light of the market.
it gets hard to continue to drive the hits. it is hard to meet wall street expectations. do you think that throws cold water on the anticipation of all of the other unicorns that are ready to go public? is fascinating is that their revenue growth continues but what we really a question about evaluation. and when you see the money going into these companies with very high valuations -- first of all, the investors are not losing. they have terms and protections. and the founders don't lose because they have a lot of money. s is employees. so this is different than the tech bubble of 2000 where there wasn't a fundamental value.
these are companies that are in a strong place in the market. betty: are you saying they can withstand a down round and they can withstand valuations? michael: i think they can. the question is, the company with the best technologist wins. if the employees are people who get hit the most, then they will have to find a way to reprice the options or find other incentives to keep the best people. downwardn you have a trend, they have to find a way to make it cool. to twitter, weck are not sure whether jack dorsey ousted the executives were they left or it was a mixture of both but kevin we'll has gone to facebook to head the product at instagram.
is jack dorsey going to have a talent problem? it is not going to look that cool to work at twitter? michael: jack dorsey is a product guy. and product people can hire other product people. that is the difference. dorsey, there are a lot of great people who will go to work with jack dorsey. betty: that was michael wolf, great to see you. be sure to stay tuned for today's tech bonanza. we will have coverage of facebook which will port -- which will report their results after the bell. top tech analyst gene munster will be on bloomberg west to talk about bloomberg and apple, that is later today. ♪
isty: welcome back, this bloomberg markets and it is time for a business flash, some of the against business news stories. a jury has acquitted five of the six brokers charged in the wymore case. -- trillions of dollars in derivatives and loans. the jury is still the liberating charges against the six rocher. clears the way for the next star broadcasting to buy media general for $4.6 -- $4.6 billion. marianne will get a look at the next businesses that media general owns. boeing forecast profits for this
year missed estimates. the plane maker is expected to deliver fewer jetliners this year than last year. postedve already production for 747. the stock is taking a wallop on that. for a look at how u.s. markets are trading now, we are coming back from the lows of the session. abigail doolittle has more from the nasdaq with two travel stocks. abigail: yes, the selloff is widespread with online travel companies, priceline and trip advisor trending down. they have gone from a buy. it is the same on both, the macro environment is not as favorable for these companies. , when we take a look at a long-term chart, we do see this.
this is a stock that many were interested in. but more recently, the stock has been stuttering. have to wonder if the run is over. look at advisor, they valuation, that is a concern with growth. the stock traded down in a trading range. that could continue as these concerns persist. betty: thank you. that was abigail doolittle at the nasdaq. ago, barry diller went on to become the chairman of expedia and he joined stephanie ruhle and david westin earlier today to talk about amazon and jeff bezos and also twitter. at the pointre not that facebook is at. they have enough subscribers.
toebook has enough viewers last them for the next century. but that is not true for twitter. david: they have gone past the market value, investors are telling them something. barry: what do investors know? investors live in the past. stephanie: help us understand. you need investors to believe in your company. barry: investors will believe in your company when the trailing facts -- and they have to trail for a while, particularly if you ife been in the barrel -- that happens, then it takes time. stephanie: unless you are amazon and investors leave and you. barry: effects on amazon are astounding.
from the very first hour of the first day, what amazon and jeff bezos has said is that they will build infrastructure to serve customers and we don't care about anything else. so it is an endless time of investment. i will make you a prediction. jeff bezos will be the richest 5-7on in the world within years. to me, i think that is hands down. david: at some point you have to make money, it can't be a endless investment. do make money, their cash flow is very good. they reinvest all of it which is why it is going to be one of the most valuable companies in the world. that is why. pleasing theion to
customer at whatever it costs. there amazon prime is genius. allhanie: at the cost of retail? if jeff bezos is going to be the richest man in the world, anyone who is even selling the same product that amazon does is getting carried out. does that mean it is the death to all other retail? barry: no. something doesn't have to die in order for something to live. diller.hat was barry he was talking to stephanie ruhle and david westin earlier on bloomberg . he has sharp opinions. he is investing in a new company with his old friend, check connoted. tomorrow, they are unveiling a new wireless service that will connect homes to the internet, this times -- this time wirelessly. that'll be tomorrow at 10:30 on
betty: welcome back to bloomberg television. is restructuring his company, they are offloading dealer operations and part of that is because of the new federal retirement rules. aig is selling the company and that plans to prepare 25% to shareholders over the next year. , they haveybacks passed a milestone. they have now brought back more shares than jpmorgan. i want to bring in dan kraut. he has covered aig since 2007. peter said about this deal, what are these rules?
daniel: the idea is that you only sell products to clients that are in their best interest. they put together retirement products for things like that and they have a sales force that goes out to retail clients and they pitch their own products. so the obama administration is questioning whether the consumer is really getting the best deal. betty: because they are pitching their own how to ask. daniel: this is widespread. can tell youey facts but when they are selling something made by their own company -- whether there is a conflict. so the company is buying at -- light year and they are not a provider. they are a middle man. so it seems to be a more natural fit. betty: what you think of the reaction? what have you heard about the reaction to peter's
presentation? the $25people like million, that is a lot of money. and the only way to get there is sales. the ipo. daniel: yes, they talked about reinsurance transactions to create capital from life contracts. people like that. , who isne shareholder watching all of this closely and has built that company is the former chairman of aig. ask him yesterday what he's thought about peter. >> you will have to prove that he is. until he does, there is a? . betty: it sounds like there is a question. you are doubtful? >> aop does it. -- i hope he does it.
but i don't see it yet. it is nothing like it was in the foreign field. hank -- the jury is out for hank. what are people telling you about whether he saved his job yesterday? daniel: the thing that people are skeptical about, and this is something that has bedeviled several ceos is that they announced a reserve charge. they decided there was a shortfall and they had to refill it with more than $3 billion. when you buy an insurance company you are counting on them to be crude. rude. be p quickly, they didn't -- was that a surprise?
icahn is pushing is oneively and metlife of the oath or -- the other companies. that ithas said before is not a big deal and he is also said that exiting the assets to jeopardize some of the tax assets. so it is consistent. betty: good to see you. much more ahead, will all of the market volatility change the fed thinking about the hike? we will ask richard jeffrey. that is coming up on bloomberg television. ♪
london as we wrap up the trading session. we have climbed back quite a bit from the lows. but we are still down for a second day. investors are twiddling their thumbs ahead of the release of the policy statement. the european close starts right now. betty: we are taking you from new york to london in the next hour. nobody wants to take a big position ahead of the fed meeting. mark: exactly. it was fascinating to see what happened when the inventory data came out of the united states. crude supply climbed. 600 move withoxx the price of oil. ha