tv Bloomberg Markets Bloomberg February 8, 2016 12:00pm-2:01pm EST
hardest, down by 2.5%. volume is also increasingly higher come in terms of the dow up 24% versus the 10-day average for this time of the day. you can put a lot of the blame of the selloff toward the banks. overall, here in the u.s., as well as overseas. bank of america dropping 5.8% in the u.s. you also have european banks leading the declines overseas. the greek of banks, of course, getting hit the hardest. the stock exchange getting hit the hardest among all indices across the globe. let's get to julie hyman who is monitoring the market moves. julie: we are seeing a selloff today. you can put the blame on the financials, but who can you ultimately put the blame on? confounding is so about the selloff we have seen thus far in 2016.
goingou have oil prices down, concerns about china, but there is nothing different today and that has sparked this selloff. a lot of investors we spoke to are profoundly disturbed by that idea, that we are seeing this selloff without a specific catalyst. to three averages continue push lower. it is a broad-based selloff as well. bloomberg, in the you will see all of the 10 industry groups in the s&p 500 are in the red. financials are dragging down the averages the most. consumer discretionary, technology also doing poorly. something else i want to look at on the bloomberg, the heat map of the s&p 500. this looks at the monthly performance. you have to go back to 2009 to find the last time that we had a consecutive january, february decline. this is a fairly unusual event.
right now, we are on a back-to-back 5% decline. your to date, for the three major averages, we have an acute pullback, mostly in the nasdaq. 1.5%asdaq is only about away from entering a bear market. that is a 20% decline from its highs last july. alix: many individuals looking the s&p.12 level on the other story is oil. less prevalent today, but something to look at. julie: on a relative basis, it is doing better than the stock market. we have seen a little bit of a bounce from the lows. earlier fell below $30, then back above. many of the oil stocks have been faring better on a relative basis than other areas of the market. look at the big cap oil stocks. they have turned higher on the
day. a one-to-one correlation. money going into gold as investors look are what they perceive as a safer place to be. treasury markets, as we see yields on the 10 year the lowest in about a year, 1.75%. a lot of indicators of investors being worried. alix: thank you. now let's check in on the first word news with matt miller. president obama will ask congress for 1.8 billion dollars in emergency funding to fight does zika virus. thousands of pregnant women in the caribbean and south and central america have been infected with the virus which is spread by mosquitoes. linked to birth defects. the un security council is promising to retaliate against north korea for launching a
laundering -- long-range rocket. the you and considers it a forbidden missile technology test. in taiwan, four survivors from the killer earthquake were pulled out of a toppled high-rise building. hundred -- 100 are still believed to be trapped. the day before the nation's first primary, donald trump continues to dominate in new hampshire. he leads the field with 33%, according to the latest cnn poll. he is followed by marco rubio at 16%, ted cruz at 14%. but another poll has rubio and cruise tied at second place. as for the democrats, bernie sanders still leads hillary clinton by a wide margin in new hampshire. be arow, there will special two-hour edition of "all due respect" starting at 5:00
new york time. alix: thank you. we are going to look at chesapeake energy shares, the company halted multiple times on debt worries. the company announced it has no plans to declare bankruptcy. this helped slightly but the stocks $10 billion debt load is still a concern. speaking to are spencer from princeton, new jersey. the company has drawn down 100% of its credit line. that typically means bankruptcy but the company says no. >> the news is interesting, with a drawdown. the fact that the stock moved so dramatically on unconfirmed reports at the time that they had hired restructuring advisors shows how jittery the market is. given where chesapeake is today,
where the market is today, they probably have been working with restructuring advisors for a while. they already did a multibillion-dollar debt exchange. that should not have been a .urprise drawn down on your credit line, getting all the liquidity you can while you can, to get it to last as long as it can. they have a $5 million bond maturing in march. what is the catalyst that will have to tip them into bankruptcy? i mentioned, they did a debt exchange in september, and that gave you a window into what the company's plans may have been with regard to their debt maturities. , whichd not target this would imply that they would want to just pay it off. they had $5.7 billion in liquidity at the end of the third quarter. this year, reporting somewhere near $5 billion. they should have the ability to pay it off if they want to.
the wildcard is, of that, $4 billion is in the form of the borrowing credit line. i was going to say that could've been reduced pretty dramatically, and it can be. the borrowing base can be cut, and that will be the biggest wildcard at this point. for: we have been waiting this to unravel, to see if we will see energy companies shutting production. if they went bankrupt, with abo to produce natural gas? the thing with producers, just because they go bankrupt does not mean they stop everything. the wells that have been drilled, where the marginal revenue is higher than the cost of producing the next barrel or cubic feet of gas, they will still produce. it is in everyone's best interest to keep as much cash flow as you can. futureen happens is capex is not spent to increase production in the future, so it starts to tail off. production would continue to go
that is already online. alix: spencer, thank you. back to the overall markets, the s&p heading toward the 22-month low. stocks extending the route from friday. the nasdaq composite having its lowest level since october 2014. what is next for the economy? alessio de longis is with us from oppenheimer. what is going on the last two days? we had the good jobs report. what are the markets thinking? >> the report is good for employment, but not good for the markets. it really means the fed is in play. other central banks are trying to ease more. weak global economic conditions. the threat of using moore is not filtering through from the ecb and doj. -- boj. on jobs report keeps the fed the idea that the tightening cycle is on.
many of us believe it is a policy mistake. it looks like we will have to live with that mistake a little more. that is how i interpret the market reaction. alix: why are european banks getting hit so hard? >> that is really the news element. italian bank headlines for a while, but in my mind, retrofitting the story with the data, what we saw last signsas the first that the european growth momentum is no longer accelerating. if you look at the pmi survey, the manufacturing side, they are showing signs that so far europe was immune to the global slowdown. now it is the most cyclical part of the world through the manufacturing engine and it is starting to slow as well. then you find yourself with the three major economic blocs in the world slowing down, policy tightening in the u.s., and
credit conditions tightening. we saw on the loan officer survey last week signaling the second quarter of that tightening conditions. it started off with worries about china, then filtered into worries about oil, and what that set about oil demand. are we now in the third phase, where there is a legitimate fear of global growth slowing everywhere? think you lay out the sequence nicely. you are starting to see contagion. before we said this was limited to the energy sector. the connection between oil, the dollar, high yield energy. then it became all of high-yield, then investment grade. now classic cyclical dynamics. credit leads the way and stocks follow. it seems that stocks are listening to the credit market and you are seeing some contagion anywhere, also geographically. alix: are you worried about the threat of a u.s. recession and
global recession? by some measures, that is what the high-yield market is telling us. sincehave been defensive last june to our level of defensiveness has increased on a steady basis up until now. ancontinue to have underweight in equities, we are out of credit markets. our view is we could be in for a difficult right ahead. it is important to keep in mind -- the problem is, we may look back at 2008. this is not 2008. at the aggregate level, the private sector is deleveraging. households are deleveraging. the transmission mechanisms are not there. meaningfulll this a recession, one that last for a couple of corners with mild and magnitude. without a consumer recession, you cannot really get a severe recession.
this seems to be limited to the corporate sector. quantitative tightening, when sovereign wealth funds are no longer buying. like china selling its fx reserves, not buying them. what part of that is percolating in the market? >> i think it fits into the idea that through balance sheets -- coincidence or not -- the s&p 500 stopped rising when the balance sheet of the fed stopped. when you combine this with what is happening with china and oil countries, it seems not so efficient quantitative easing from the ecb and boj. alix: so the easing cannot offset the tightening. >> what you are seeing is dollar tightening taking place with managers cutting reserves and the fed no longer expanding the balance sheet.
there is some merit to the theory, absolutely. alix: the thing that you are most bullish on right now? >> duration. alix: fair enough. thank you for joining us. alessio de longis. seller andrewrt left is targeting a new stock. company is wayfarer. other analysts are long. stocks are in sharp decline. it down as much as 3%. china's stash of cash is shrinking. the company dipping into its stockpile to defend its currency. how long can the last? ♪
alix: welcome to "bloomberg markets." i'm alix steel. you are still seeing a selloff on a dow and s&p of about 2%. lows of the session. it was hard to find a catalyst but easy to find a stocks hardest hit. that resides in financials. bank of america dropping almost 6%. s&p financials hitting the lowest level since 2013. the weakness started in europe with those banks, seeing their lowest levels since 2012. the weakness from europe spreading over here to the u.s. it is time for the bloomberg business flash, a look at some of the biggest business stories in the news. the ceo of google is on the verge of becoming one of the highest it executives were a public traded company. pichait awarded sundar stock worth $199 million.
the shares will divest between now and 2019. investors withdrew 14.8 ilya dollars from bill gross' fund last year. it is the third straight month of net redemptions. the fund is up .3% this year through last week. who needs to pay $5 million for a super bowl ad when you have peyton manning? the quarterback gave shout outs to budweiser twice during the interviews after the game. one firm estimated that created $3.2 million in exposure for the beer. anheuser in bed says it did not peyton manning. as a couple of years ago, manning did own a couple of distributorships. wayfair, the online commerce retailer of home goods is down 13% in trading today. over the retail -- weekend, the founder had quite a lot to say.
he tweeted, new day, what to sell now? they have the worst business model on the internet and it could go away and no one would care. one managing partner also does not like the stock. listen to what he said last year. >> they have a terrible business model and will never make a profit. the stock is overvalued based on that. this problem is indicative of a problem that has grown much too have ad does not really firm handle on their business or quality control and compliance. alix: andrew left is with us now from l.a. you said last year that their stock was $10, now it is five dollars. why'd you feel it is so mispriced? >> the company does not mean anything. it could go away tomorrow and it would not make a difference. there is nothing they have that is disruptive.
it is trading at a market cap that is completely devoid of any realism whatsoever, and away from the whole furniture space. wall street has lost her mind. realistically, the larger shareholders have decided to keep a tight stock. no one has told them that it is february 2016 and not april 2015 anymore. alix: how are you playing this, are you going to short it until it gets to 5? you could short did here, 20, there is nothing about this company -- this is a billion dollar company. there is nothing about this company that is even worth a billion dollars. alix: some disagree with you. market is 5%g home online penetration versus 50% for other retail categories. onlinery, buying a couch could have a lot of growth potential. what do you say to that? >> it is funny when you hear
people discuss this. you would think the internet started yesterday. you can look at companies like williams-sonoma, restoration hardware. 50% of their business is already online. for the analysts, all you have to do is take one thing. look at goldman sachs. last week, they upgraded wayfair. if you take the internet coverage universe, over the past three years, the average stock is down 50%. out of 40 stocks that they covered, from they hard target data initiation, out of 40, how many are higher? zero. it's an amazing record. my five-year-old can do a better job taking stocks than these internet analysts. we did reach out to wayfair to see what they thought about your argument. they said no comment. bloomberg did talk to the ceo in november of that whitney tilson's comments.
here is what he had to say. >> there is no question mr. tilson is bearish on our business, he is shorting it and is saying whatever to drive the stock down. shorts, it at his tends to be companies that are disruptive, doing things in a nontraditional way. comparisons to the traditional model do not always hold from where they sit. promise touge product safety. alix: so what do you think of that? >> they are so far from disruptive. it wayfair went away tomorrow, you could buy a nightstand elsewhere. this is a company that sells furniture online. this is the opposite of disruptive. twitter, all of these companies are more disruptive than wayfair. i agree with the ceo. he has been a consistent seller of his stock, just like i am on
his stock. you are saying he does not believe in his business model, cashing out to get the money? stock.s selling a lot of of course he will say i'm not selling nearly as much as what i own. but he is a consistent seller of his own stock. there is nothing about his business that is disruptive. i personally believe he is disingenuous and he lies to wall street. he consistently says for years, wayfair was a profitable company. what he doesn't tell you is they were not profitable under wayfair, but when they were called csn stores, and they had a bunch of sites, where they google traffic. in 2011, with the update, google destroy their business. that is how wayfair started. whenever this gentleman says about how they were profitable,
let him talk about the existing business and not the nonsense that he refers to pre-ipo. alix: always great to get your impassioned take, andrew. just to repeat, we did reject to wayfair for a response and the company described -- declined to comment. coming up, the equity selloff intensifies. the latest news on the market. the dow is off 309 points. ♪
you can see the stock plunged 51%, and then was halted, now down by 40%. it's been bouncing around quite a bit. the problem is the company debt. take a look at the debt distribution. debt.illion in its market cap is $1 billion, so considerably higher debt that in market cap $1.3 billion debt is coming due before the end of the year. so lots of concern about its ability to repay. alix: thank you. we are continuing to look at the markets amid the chinese new year. we will be right back. ♪
let's get the first word news with matt miller. matt: new hampshire vote tomorrow in the first presidential primary. bill clinton cannot hold back any longer. he accused bernie sanders of intentionally deceiving voters. he also went after his supporters for attacking his wife's backers. sanders leads among democratic voters in new hampshire. be anotherere will special two-hour edition of "all due respect" starting at 5:00. a disturbing new report from a u.n.-backed commission on a syria's aerial -- civil war. several thousand detainees have been executed or beaten to death in what amounts to extermination under international war laws. international investigators say they are short of enough estimates -- evidence to provide proof of those killings.
iranian president rouhani awarded medals to the nuclear chief and defense chief. record numbers watched the denver broncos victory over the carolina panthers. the game score the second highest overnight rating according to nielsen. 49er bowl 50 averaged a household rating. that was topped by last year's game. alix: thank you. turning to china, markets are closed all week for the lunar new year's celebrations. over the government, -- the weekend, the government released key data showing the reserve 999 --it could signal fears of a capital flight are not over. between two fears
members earlier today. >> they are certainly trying to defend the yuan. they are bailing out the stock markets, pumping it into stimulus, but what they really need are structural reforms. they have enough money, but they are wasting the time. eventually it will not be enough money. many investors say when they are forced to devalue, that is when you will see the wheels come off. the s&p will crack. that is exactly wrong. when they devalue is when they stabilize. >> why? fact thatll be the they have taken control of their economy. they will make a one-time adjustment that will stabilize things that will take them forward. >> that will scare a lot of people. >> this goes back to what
stephanie and david were saying at the start. ,ou can put whatever acronym the keyword is panic. there is nothing fundamental driving the markets. people should be buying now. there isoblem is, structural weakness and any to be structural reform. is basic problem in china that their economic problems are not core economic problems, they are political problems. to have the structural reforms they need to shift their economy to be on a sustainable basis, they need to allow the markets to work. they need to allow small and medium enterprises to have access to capital. >> [indiscernible] i understand it is nice, you want to say it's a political thing, which is popular to say in the west, but we need this to
get the markets right. they can put up capital controls at any time. they have much greater growth in the employment sector. consumption has been growing. this is all getting out of hand. true.t is really not the basic problem is the misallocation of every resource. it begins with political power and flows downhill from there. loansve 70% of the bank are going to state owned enterprises. that is the problem they were trying to address by enhancing the markets. the basic issue is that they are not getting capital where it needs to go. could they fix it? the fixes require structural reform, which is a political reform to free up that space. >> i think you should check the facts. 70% of credit is not going to state owned enterprises. feisty conversation.
for more, we want to bring in jeff shen from black rock. what did you make of that exchange, what did you think of mr. pozen's idea that you have to buy china right now? >> it is difficult to think of china as a whole. as i listened to the debate, i think there are merits to both of their arguments. on a broader level, there are some structural challenges. you talk about the foreign reserve. that is a huge overhang into the weakness. at the micro level, when you think about the consumption, private enterprises, there are some good companies that are pretty cheap given the panic in the market. alix: can you talk about which ones are what sectors they are in? >> when you look at the technology and consumption names, 10 send, alibaba are some of the names. they have been beaten done quite a bit because they are affiliated with china.
when you think about china, there are really two economies. one is in the industrial sector, which has quite a bit of leverage, overcapacity. i think they will see quite a bit of a head when going forward. but the consumption story is in tech. get creditchina not for that side of the story, when will it? >> in the short run, people are trying to get out. that is clear from the foreign reserve data, where you see there is a pretty visible whether in chinese companies repaying the u.s. dollar debts, or maybe some of the purchases that companies have done overseas, or maybe just individual trying to get out of china. right now the sentiment is negative, that creates opportunity, if you are looking into what has changed. alix: you mentioned companies paying down their dollar debt.
fxthe result is lower serves, that is a good part of the story. tell us more about the different part of the angles for those reserves being drawn down. >> the fx reserves have come down quite a bit. over the last 12 months, $600 billion. certainly a gigantic number, in absolute or relative sense. underneath, when you look at what is driving that, on the one hand, you have the outflow of paying down the debt. some of it is also pure valuation. the reserve is measured in u.s. dollars. have major currencies depreciated quite a bit, and that is causing that effect on the overall reserves. there is still quite a bit of money in the war chest, but the pace is certainly getting to be a bit worrying. this is where the government is seeing -- is between a rock and a hard place. him go with a large devaluation will cost quite a bit of problems for
overall sentiment and confidence, global market repercussions. at the same time, letting it go gradually is incurring real losses on the reserve. so it is a tough choice. alix: do you think emerging markets have factored in the correct issues in china, have they repriced for it? >> other emerging market currencies have devalued quite a bit. india has fallen about 30% compared to five years ago. most of the are emerging market fx has been one of the most volatile parts. other markets are certainly devaluing in relation to the dollar. but i think when it comes to china, i think there is a currency affect, but also a much broader problem in terms of where the growth is, and where the growth can come from. that is a big question. i don't think emerging market has completely adapted to the new reality of where china is. alix: we did see india gdp for
2016 projected to grow 7.6%. what kind of potential does india have to offset weakness in china, now and in the future? >> i think india has a couple of things going for it. there is a bit of an issue of the budget deficit, but at the same time, the reforms are coming along boosting overall gdp growth. on the other hand, it has a tail wind from the currency and energy price, given that it is a net importer of energy. of the countries we think about, india is a bright spot. the only thing that is a caution is the valuation of the indian market. reasonably high. price-to-earnings ratio around 18. it is one of their favorite markets when people look at emerging markets. so what do you like? you mentioned some consumer
related stocks in china. what else is on your radar? >> taiwan is a market that has been beaten down but they actually have quite a lot of gearing on the technology cycle. you look at the apple downstream , implications for taiwan, it is an interesting market. it has a pretty healthy mix of fundamentals. we like taiwan quite a bit. we did like korea, and interesting long-short setting. the valuations are still reasonably high but the overhanging debt is certainly a real issue. fundamentals are slipping quite a bit, so there is a parity trade there. alix: thank you for your insight, jeff shen. track up, apple is on when government permission to open its retail stores in india. seeking -- tim cook is business growth in a country
facebook. it will notouncing be able to offer its site in india under the free basic land the company had been pushing for. this marks a reversal or facebook. last week, shares were up your, now down on the year heading for their 200-day moving average for the fourth time over the last 12 months. it will be interesting to see if they can hold that support or not. helping out the nasdaq, apple. ghted toest member wei the nasdaq, still up from last year's lows, $92. this on reports of the company is on track to open stores in india and expand its global footprint. whether or not they can hold and buying support of $92 may be a key tell for stocks overall. alix: i'm alix steel.
this is your global business report. largest energy trader sees a decade of low oil prices. we will hear from the head of vitol. is considering its options for the truck business. apple is close to clearing a hurdle in india. details on its global expansion plan next. first, let's start with comments ceo speakingl exclusively to bloomberg. he believes oil prices will stay low over the next 10 years. he also gave a confident response on why -- where brent prices will end the year. >> $48. i am sure i will be wrong. alix: the heavy truck division at volkswagen is considering options for growth. the unit chief said could pursue more acquisitions or an ipo. one area for possible growth of expansion, the u.s., the only market where bw trucks have no
significant presence. president juan manuel santos gave his outlook on the pending peace accord with the , andst rebel group farc impacts of the deal. cost,e than the fiscal which we had been planning very carefully, this will be a tremendous dividend for the growth. calculaten g -- we growth can go up 1.5% to 2% per year forever with the signature of the peace agreement. to openple is on track its first retail stores in china, according to a person with knowledge of battle. tim cook wants to grow the company's business in a nation of 1.3 billion people. it is now time for our quick take, where we provide context and background on issues of interest.
today's topic, puerto rico's struggles. there are played most people with a mutual fund invested in the bond market. there is the situation. for a small island, puerto rico has giant debt troubles totaling $70 billion. one of its agencies default it in august, and it started moving ahead with spending cuts and talks with creditors. in january, a proposed a voluntary plan to slash debt .oad in half by repaying next up is a $2 billion bill for principal and interest payments due on july 1. the debate is brewing in washington on how executive move forward since puerto rico and its agencies cannot use the equity tools to restructure debt. puerto rico has taken on more debt than any u.s. state government except california and new york, and they did not do this on their own. in the mid-to thousands, big banks ought to the island, creating new bonds after the
territory adopted a sales tax. the banks raked in hundreds of millions in fees while puerto rico took in 120 $6 billion into its coffers. but the economic conditions changed when the u.s. phased out special tax breaks for the island, and since 2006, the economy has contracted every year except one, and the poverty rate has soared. the population is dwindling and heading toward a 100-your low. so what happens now? the obama administration and the governor of puerto rico says oversight is prepared with a plan to give the island access to an orderly process. bond insurers oppose the move because it could force them to take more losses, some categorizing it as a bailout. critics say no matter what help it gets, it must push ahead with series austerity measures. there is a concern that alone puerto rico to use a court ordered reorganization without a controlled foreign would fail to address the island budget. your globaln
alix: welcome back to "bloomberg markets." i'm alix steel. puertock is ticking on rico's debt bomb and negotiating debt relief is not easy, and no one knows that better than richard ravitch, who helped new york emerged from the financial crisis in the 1970's. recently, he was involved keeping detroit afloat. such a pleasure to have you here. you have a unique perspective into how these things wind up working. what do you think happens to puerto rico over the next year?
richard: i think it is the most egregious example of an thertunate marriage between miscues borrowers and promiscuous lenders. borrowed, as you said before, for more money than they could afford to pay back. the question is, how do you adjust that in ways to prevent the economy to restart and avoid social disorder? tohink there is only one way do that, and that is by being granted by congress the authority to restructure the debt. including pension obligations. about the argument that bankruptcy can help reduce the debt but it ends up making muni investors care to invest in the future as is? i don't believe history supports that argument whatsoever. new york was back in the market as soon as it was legitimately
entitled to borrow again. alix: detroit? richard: they have not tried to get out of the market yet, they are not out of the wood yet. thebankruptcy process saved 600,000 people in detroit from catastrophe. they are struggling with an when there are, a lot of other problems in other places like michigan. it's a complicated story. at least they have a chance now. investors have been skittish because of the bankruptcy. richard: no one has asked them to invest recently. whereas those who are investing in real estate in detroit, it is on the road to recovery. debt, municipal debt, is a very separate thing from investing and making a bet on the growth of an economy,
state, in this case, territory. you cannot ultimately ever get back into the credit market and borrow money unless you can demonstrate that your economy will grow. the days have passed of the recent bond -- although the recent bond sale in chicago may have disproved that -- that people are getting sick and tired of lending money to insolvent governments. at 9% triple tax exempt, it is very seductive to people that are hungry for yield. if they are going to receive an timesst rate that is many higher than what a truly solvent government has to pay for money, then they have to be prepared to take the risk. alix: what are the odds that congress will allow bankruptcy protection? richard: i'm an optimist. there are 3.5 million u.s. citizens in puerto rico. i think the risk of social
disorder and consequential responsibilities for the federal government will ultimately make all of congress realize that this has to be done. with the federal oversight board insuring their restructuring the people inso puerto rico, and the long-term, creditors, is the only way to solve the problem. some you have been getting heat for helping puerto rico pro bono. a company will, benefit from bankruptcy because they will want more protection for the munis they sell going forward. richard: i have been accused by various tea partiers of that. i have no economic interest whatsoever. it is a wonderful activity. i'm interested in infrastructure. they help finance
infrastructure. they are not affected one way or the other by what happens in puerto rico. campaignerely a smear conducted by some of the hedge funds. alix: richard, such a pleasure to have you here. fighting for bankruptcy protection for puerto rico. coming up in the next hour, stocks of deep in the red today, but gold is shining. how long will that turnaround last? looking at the dow off by about 2%, down by 326 points. off the lows of the session but the nasdaq getting hit by the hardest, down by 2.5%. we will be right back. ♪
>> from bloomberg world headquarters, good afternoon. i'm alix steel. stocks diving over concerns of the state of the global economy. major indexes are down, the nasdaq leading the way. china is awash in gold. demand for the precious metal on the rise as investors rush to safety. how long will it last if prices keep climbing? rate hikes on the table this year, but can it be headed for negative rates instead? let's head right over to the markets desk, where julie hyman has a look at the latest selloff today. julie: the latest because we've had so many so far in 2016. stocks nearing the lows of the session. the nasdaq has -- is the one we
are watching in particular. we are not far from entering a bear market. doesn't look like we are going to get there today, but nonetheless it could reach that level in the coming days. i want to focus on the dow for a minute as we have this now 325 point drop. the two day drop of amounts to more than 500 points. two sessions, as we are looking at friday and today. looking at the bloomberg you can see the movers and what's contributing the most of the losses. for stocks alone contributing to the decline in the dow. goldman sachs, home depot, boeing. there is something specific about these stocks that reflect growing concern over economic growth not just in the u.s., but globally of course and -- of course and the interrelated nature of it all. talking about headlines not making sense, we learned oil ministerzuelan met with his saudi arabian counterparts and you would think
it would have helped oil prices, but that wasn't the case. julie: nothing came out of those talks. alix: a couple of weeks ago we would have seen a huge rally springing out of it. i guess pessimism springs eternal now. out of china, oil started to go negative. it has recovered from the lows of the session, so it is not really the worst-performing asset class today, though it's pretty negative. i'm going to take a look at a chart for oil prices in gold. oil, priced in gold terms, is at his lowest since at least 1988. if you look at the real price adjusted for inflation according , an author and goldman sachs banker, the lowest since 1973. another way to look at the negativity we have seen in oil. gold has been going higher with oil that has been going lower, giving you an idea of why we have seen go -- gold and oil
prices going to that low level. one of the standouts again today as people try to grasp for what as safereive investments, at least on a relative basis. good stuff. thank you so much, julie hyman. matt miller has more on the bloomberg first world -- first word news. matt: one corner of the population of south sudan is in need of food aid, as 40,000 people are on the brink of catastrophe. wars that corrupted in the ofican nation have left tens thousands dead and forced 2 million others to flee their homes. south sudan has a population of about 12 million total. president obama says that he is not surprised that north korea launched a rocket over the weekend. morning theiew this president said the u.s. and south korea are now discussing their options. the un security council is likely to come out with more
economic sanctions against north korea this week. i hacker has posted the details on almost 10,000 employees at the department of homeland security. workers at the f ei maybe next. "the hill" reports that the data appears to be genuine and the hacker is now threatening to post information from 20,000 fbi employees. a white chicago police officer suing the estate of the mentally ill college student that he shot to death. he says that the incident on the 26th has caused him extreme emotional trauma. he is seeking $10 million in damages. the 55-year-old grandmother, whom police described as an innocent bystander, was also shot to death. than 70,000 football fans watched the denver broncos shut inn the panthers last night levi stadium. meanwhile in denver, a grateful city showed up in force to
celebrate the big win. thousands of people lined up .owntown cheering police arrested 12 people but haven't reported any major damage or injuries. they arrested more than 25 people in the broncos one back in 1998. global news 24 hours per day, powered by our 2400 journalists and hundred news bureaus around the world. alix steel? you so much, matt. gold regaining its luster, the exchange raising it off its high from one year earlier. ceo and chief investment officer of u.s. global investors and the author of "gold watch her" joins us from san antonio. -- watcher" joins us from san antonio. frank: great to be here. the story of gold
has been the reemergence as a safe avon asset, but we have not seen that in the last two years. asset, but we have not seen that for the last two years. frank: it's been a spectacular move. when you talk about being up to standard deviations, it fits in perfectly with the chinese new year that we get a surge in the first couple of months and that a correction. gold could easily correct. what is different from last year are the negative real interest rates. alix: meaning that it is helpful to gold? you could make the argument that it pushes the dollar higher as other central banks go into territorynterest rate that could be negative for gold. that's true, but world trade is still in negative territory and governments will have to find something else to stimulate the economy but right
now it seems that negative real interest rates are helping gold. and iyou brought up china looked at the bloomberg and it is a fascinating story. gold prices are really on the rise. chinese consumers really buying more. as more money flowed into the chip -- chinese stock market, how do you see this inverse correlation? how does it play out? consumption continues to be very robust. in america, talking to companies selling bullion coins, they had the second-best year last year. there is a strong physical demand for bullion around the world. alix: the difference with china is that the government there actually wants people to invest in stocks. frank: yes, but they had the bigger -- biggest dollar cost
program throughout the banking system. every paycheck people put away, they buy one gram of gold. millions of people are doing this. alix: you mention this because of the seasonal rally that you saw here, we are expecting a kind of selloff -- not selloff, but reverting back a little bit. can you give me some short-term price targets? it could easily move plus or -$50 as a standard deviation. that would easily gain a correction from it. i think that gold is going to continue to do much better this year than last year. a prettyah, that was low bar, as we both know. of price sensitivity, do you feel that there is a level where physical buyers back off? frank: within the next $50 would be a back off, unless some
around the happens world. right now i think that gold has had a wonderful move, doing what we have always advocated every year. it has really helped the other which have declined. last year australia and canada, some of these pure gold stocks year,gnificent moves last even though the price of gold had declined in dollar terms these countries had seen the cost of production -- because oil is down -- with margin expansion. they are making so much money, you are seeing benefits of this in the currencies of other countries. alix: that's a great point. would you characterize these investors as sticky? think that jumping and
is the currency, but the smart buyers were buying it last year. i think that china continues to have this policy, moving up to a global currency, acting out 3% of the currency backed up by gold. they bought 100% of the worlds supply last year. that thatmentioned would be referring to the central bank buying. barclays pointing out that china has their own gold when it comes to the central bank reserve. what kind of pace of buying do you expect from them? they maintain this level they purchase and all new mine supply that is likely to contract and its peak next year. i think you are going to see a floor of $1100 per ounce, easily back up to $1500. wow, that is a lot. how much would it be that the pboc would buy? what, 180 tons of
consumption on a regular basis? what's also interesting is venezuela, which took all the and it is absorbed readily into the market. that's a very positive statement for gold. very good to get your investment, frank holmes. follow the bank of japan and moved to negative interest rates? we have stanley fischer saying that it can be effective. how actively should you be investing during volatile markets? according to one strategist at black rock, finding volatility is the perfect chance for managers to differentiate themselves. how long will prices last? the largest energy traders says that it could persist for a decade.
back to "bloomberg markets." i'm alix steel. i want to look at the sectors i wantocusing --julie: to look at the sectors here. materials is down the most in percentage terms, but financials are down the can and neck with it. more heavily weighted, a big part of the story of the declines today. big cap banks are helping to lead some of these declines, as they have been in recent days and there are a number of different reasons why financials
have been underperforming. take your pick, we got the exposure of these companies to debt from the oil and gas sector. big cap banks, you will see them pulling back today. that's another of the reasons, with what we are seeing happening to the yield curve, a sort of narrowing of the yield curve, meaning that the possibility as measured by net interest margin from these banks , the potential for profitability is getting less with the crimping that many of these firms have said it has put on the products. again, a sort of grab bag of reasons why. the big european banks have been suffering because there is a perception that they, too, are as at least exposed to that gap, if not more so. so, here are those european banks we are talking about. are alson the u.s. pulling back, whether you're talking more about the business brokers, goldman sachs -- goldman sachs or morgan stanley,
or finally the reach also declining in today's trading. helping to lead the declines there. you so much, julie hyman. now that the bank of japan has negative interest rates, speculation on whether the federal reserve to do the same. only last week stanley fischer said that negative rates had been pretty effective, more so than he expected. wrote aboutaggs this very subject for bloomberg news and joins us now. we have seen analysts saying that negative rates could be the real deal, so take us through it. alexandra: they were thinking about this back in 2012 and the fed roundup deciding to do qe or by bonds. back then people were really worry that negative rates would make everyone can call their money from the banks and just get a big fault and put it all
in there. but europe has introduced this, the bank of japan just introduced this, and it hasn't been happening. the idea is that the effect wasn't terrible, so they might consider it? alexandra: it's really funny, in aptions market complicated way is starting to price and potential for negative interest rates in the next year. that's by the end of 2017, i guess. that's about as high as it's been in months. i guess given all the market turmoil today people are starting to think about inexpensive ways that they can bet on that. the probability really has risen in the last few months. do they talk about the fact that negative rate currencies work at the end of the day? is a good that question and i think it's one of
the things that will hold the fed back. negative rates have a strong effect on the currency, maybe more so than qe. if the fed introduces that, you have to start wondering if the fed is getting involved in competitive devaluation, which raises a lot of uncomfortable questions. alix: it's like the race to the endless bottom at the end of the day. alexandra, thank you so much. still ahead, market well -- market volatility as a catalyst for money managers to stand out. ♪
rather than see the selloff as a time to flee, one black rock strategist says that this is the time to go on the offensive, saying that volatility creates opportunities for strong active managers to differentiate themselves. let's head over to where carol massar and cory johnson have more. carol: welcome to everyone on bloomberg tv. we are here on bloomberg radio talking about volatility and what it means for this investment environment. heather loomis is with us from the blackrock family endowments group, joining us from our san francisco studio. heather, great to have you here on bloomberg radio and bloomberg television. volatility, you believe it creates opportunities for investment managers to set themselves apart. tell us why. carol: heather: -- -- heather: we have been waiting for volatility for a while. it's hard to make money without
volatility. see year we believe we will it, it's the year to be active and we should capitalize on it across all markets. need a low price and a high price and volatility gives you that. heather: exactly. cory: but volatility in a down market doesn't mean the are exit points are near your intro points. heather: if you think about it, with strategies like that you want to think about market neutral, long short, capitalizing on things that are going up and things that are going down. consider something like m&a. you can take a position. your correlation to market data over the long-term and still make money. cory: i wonder also if in terms of changing strategies the things that prove the point that the fed in qe were really leading to correlation and moving together and making the
strategy so much harder. right, right. if you think about the past two year it's been in environment were bonds and stocks have done what -- done well in a large part of that has been a result of the inflation of asset prices. as we see that begin to end, you need to really focus on how to position yourself actively in these market so that everything from em to potentially crowded trades, like the dollar, are very important to position yourself well, not just taking that beta trade that has been so productive. want to mention -- you talk about volatility, there is so much going on. headlines crossing the bloomberg talking about yelp, their cfo is stepping down and they are planning to look for a new one, coming out with some of their results here. some of it, you can't anticipate. like what global central banks are doing. catching the markets off guard. how can you -- i know you say it
creates opportunity but some of these steps are difficult to predict. you are absolutely right. but we have been thinking about a lot of blackrock is using the data. we have so much data at our fingertips right now with cell phones, tweets, google searches that can help to predict future market movements before they happen in a very precise way. we admit that it is very hard to understand the future direction of central banks to a precise level, but data typically doesn't lie. use these more data focused strategies that point to trends that may not seem obvious can be interesting. cory: what do you mean? heather: if you think about it, if there is a hypothesis that lower oil prices could lead to a spike in demand for washing machines, for cars, why not look at the data for whose searching? that tends to perceive the
actual sale and therefore the price movement in equities. extraordinarily valuable, especially in an environment where it's hard to predict the next thing. carol: where is at least correlated to the market at this point? in a volatile market you want to look at things that are not correlated, so what do you find? heather: we are focused on things like m&a. in that space you have seen spreads moving out to 14% from somewhere around the average of 5% to 6% because of an influx of supply with less demand is a lot of players had a hard year and were shaken out last year, a space it is traditionally very low correlation in a market like this. something like infrastructure, like essential service, transmitting an essential service like electricity is very interesting. securing a cash flow, an investment grade cash flow for
services, that's not very correlated at all either. those are the types of things and some of them are in the illiquid space, which you can capture at a premium right now. all right, we've got to wrap it. heather, appreciated so much. coming to us from blackrock, joining us on bloomberg radio and bloomberg tv. back to you, alix. alix: thank you so much. we want to update you on some breaking news. the yelp cfo will be stepping down. this comes as the company sees full-year revenue points above estimates of the high-end, 700 million dollars. the stock is halted. we will be right back. ♪ we live in a pick and choose world.
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i'm alix steel. matt miller has more from the news desk. ask: president obama will congress for $1.8 billion in emergency funding to fight the zika virus. thousands of pregnant women in the caribbean and south and central america have been infected with the virus that is spread by mosquitoes. it has of course been linked to birth defects. the un security council is promising to retaliate against north korea for launching a long-range rocket. -- views suchws launches as forbidden. the security council is vowing to impose more sanctions on north korea, which may happen in the next few days. merkel says she is outraged by the human suffering caused by a new syrian offensive. those attacks, along with forced airstrikes have thousands of syrians to fleet of turkey. she met with the prime minister there today, saying that turkey should not have to bear the
burden of handling refugees by itself. rick snyder will not appear before a house democratic committee on wednesday to testify about the ongoing water crisis that has crippled the city of flint. a spokesman for the governor tells us that he will be delivering his budget proposal to the legislature on that day. invited to dems were appear before the steering and policy committee. he has not been called to testify in front of a full committee. one day before the nation's first primary, donald trump continues to dominate in new hampshire, leading the field with 33% according to the latest poll. followed by marco rubio at 16% and texas senator ted cruz at 14%. the umass poll has him tied for second place. as for the democrats, bernie sanders still leads hillary clinton by a wide margin. tomorrow there will be a special
two-hour edition of "with due respect" starting at 5 p.m. new york time. global news, powered by our 2400 journalists and 150 news bureaus around the world, i matt miller. alix: a quick check on the markets, things just looking worse and worse. the dow off, as well as the s&p. bumping along, i should say, at the lows of the session. all in all you saw the carnage start in europe with european banks, spreading over here as well. u.s. financials at the lowest levels since 2013. having its the s&p worst start since 2008, taking of the 21en strategists from bloomberg lowering their projections for the s&p, wiping out to dollar trillion from prices. even the biggest role is concerned on wall street.
>> 2360 is going to be wrong. the question is, where should it be? what's fair value? to understand the short-term pain we are in for, thet, you studied technicals and were deep in them. back in january warned that we had a 75% chance of seeing 1850. people probably would not have believed you back then and we are there now. scott: that is where you start. you put out projection -- projections and the new measure how it happens. the problem is that people lower their yearly estimates and when you look at the technicals to start the year, most major sectors were below the moving average. the likely spot was to test of the low around 1850. now we are just about 25 handles above the low the we already made, the next important spot at 1812.
alix: if you come inside the terminal i can show you a five-year chart of the index level. here we are, we broke through that 1850 level and the next one is what, right about here? january? scott: i think we will break that and the measured move is around 1700 in the spx. alix: 1700? scott: 1700. that would be a move from the highs, if you think about the damage from the european banks, why would we not at least pullback 25% from the highs? alix: what is the market action telling you about when we can get there? well, it's been moving fast, right? the fluff is out of the market, so how do we get there and what timeframe do we use? a lot of people want to put new money to work, but not at the a month latero 7%
. short-term traders like myself are looking at 1812. it could happen today. if we bounce off there that would be short-term positive, but breaking through that would be the next level, 1770, which could happen fast. alix: at what point are we oversold? anytime the oscillator gets between -50 and -80. you don't want to be short, what you want to be careful of getting long. mine is 100 was historically different. at this point you had five down days in high beta tech. the carnage has been spreading. you probably don't want to short those names, but they are in a probing stage for finding support. amazon bought the 200 day. to that point, you are talking about the thing stocks. you can see here that the s&p is this orange line right here,
with all of them turning downwards -- that looks ugly. hopefully people saw a little bit of it coming. the first shot across the bow was netflix. couldn't rally off the final report. google, right? it couldn't hold 800 and now it is 100 points lower. amazon, taking away their 200 day. there have been some of the signs. the question is -- where is support? traders are trying to test levels. if they started on friday they got the clock needs. alix: what about the financials? coming inside the bloomberg again, i can make it six months for you, but banks have been leading the way down also in the last few weeks, so where do you think the support lies? you have the xls -- is that what's up there? alix: i can go there no problem. scott: i think the next slot
could be 1850, 19, just getting into the 20. one thing that was good, at least, with financials going into this year was that goldman sachs was acting her renders. anytime that goldman sachs -- they said the banks were going to go up because of higher rates? they said no, because they were going lower. sachs, that level, when they get to maybe 120, that's what i think we might get the bottom. alix: we haven't seen those levels, then, since the middle of 2013 at the end of the day. we rallied for seven years and now we are in the middle of our first pullback. these projects starting to unravel a bit. i think the bulls have gotten spoiled. no pullback now, off the highs with a lot of the different sectors, it's healthy and gives people like us with a long-term time -- long-term horizon a good way in. alix: do you have a plan?
401(k), 50ife's percent cash. my son who is seven? i think it will pay for his college 10 years from now. my parents who are baby boomers? am i want to be worried if they are depending on their money in the next month or two because it could take time to ride out. what a great perspective. that's like three term investing. thank you, scott. here, weon the markets want to keep you posted, picking up a little bit of steam on the downside, the nasdaq down by three points overall. a truly ugly day in the markets. coming up on bloomberg, for how long will we see oil prices this low? well, the ceo of the world's largest independent oil trader gives us his predictions. plus, rupert murdoch saying that to cutury fox needs costs by the next fiscal year. is this a sign of trouble?
back to "bloomberg markets." i'm alix steel. time for a look at the biggest business stories in the news right now. pulling money out of their own hedge fund unit, bp factual. they say the hedge fund shrunk to less than $500 million from 4 billion, releasing the former ceo. ptg has yet to comment, starting
a complication process with employees today as part of a plan to reduce staff. chesapeake says they have no plans to seek bankruptcy protection. dismissing an earlier report that wiped out half of their value in a statement today. shares plunged onward that the company was looking to restructure a $10 billion debt load. ofsapeake is among a list debt drillers struggling to resolve insolvency because of the global glut of gas and crude. the nfl wants to play ball with an increasing number of cord cutters, courting technology and telecommunication companies as more viewers are canceling pay-tv or streaming video over the internet. as an early step the league is said to be shopping the streaming rights for thursday night football link conversations with a list of companies that include yahoo!, apple, facebook, amazon, and verizon. that is your business splash update. over at the markets desk julie hyman has more and is monitoring
the selloff for us. up it -- julie: a bit of celebration -- a bit of an acceleration here as we head into the later part of the session. this means that year to date all three major averages are down by 9% or more. a 10% loss, the nasdaq consistently leading the losses, down by 15.5%. momentsmentioned a few ago, many are scrambling to cut their forecast for the full year. seven out of 21 strategists have cut their 2016 forecast for the s&p 500. this is the first time that this had happened this early in the year, this many of them, going back to the 2003 iraq war. is also an unusually high gap between the highest and lowest estimates. that is what we are seeing this year. we have not had that wide of a gap going back to 2012. interestingly, the average
estimate is still 2168 for year end. either way the strategists on average are still looking for a gain in the s&p by the end of the year, dated from the beginning of the year. the lowest forecast is from jpmorgan at 2000. one of the things that is definitely not helping, global growth concerns and china aside, though that is relevant, is the quarterly earnings contraction that we are seeing in the s&p 500. it is the third straight quarter that we will see that. forecast at 4.5%, it will likely not be that large but nonetheless not getting any help from that quarter. most strategists are saying that card, china and oil, making it so difficult to predict things this year. alix: now we have the european banks blowing out as well, another wildcard. think you so much, julie hyman, joining us on the markets.
bloomberg in an exclusive interview that prices will stay low because of slower economic growth in china. here is taylor, peering into his crystal ball. taylor: we are still in a situation where we have a two month supply, probably. the balances do not look like they are tying up. we are still seeing builds in the u.s.. i don't think you can say that. there's a feeling in the financial community that we are perhaps getting towards the bottom, but i could not say that we could say for sure. ending to use the oil the year at? a lot of people saying the market is going to balance itself and we will move into the 40's with the dramatic price increase. mr. taylor: it's hard to see a dramatic price increase. you know, i think we are all running the same kind of numbers in the second half of the year
that lead you to believe that we will probably see the firming of price. substantial? i don't think so. whether it's in the 45 or 50 range, possible. significantly more than that? we begin to struggle. if you had to put your money on a number -- as her taylor: which hopefully we don't -- mr. taylor: which opened be don't, i would put it on 48. you can come back and kill me if i'm wrong. [laughter] >> what is it go from here? mr. taylor: we are all believing that there is a larger royal -- larger role for energy in the role -- in the world, but we all see gas at incredibly cheap prices, becoming a really serious alternative in the past sector. i think that one still believes that the demand for oil keeps moving up. the supply will tighten up as the cuts with you.
as we know, these things take a long time. oil majors are cutting today, affecting production 18 and 19. one does believe that the price will eventually come back up, but it will take time. i still think that we could be several years away. been a fundamental shift in we are several years away from seeing prices back to 78. >> you don't see a sharp rebound and prices? why not? mr. taylor: because there is so much stock buildup in the world. we just believe it's going to take a lot of time to work off that stock and that will have in overtime. anddy is going to wake up suddenly see that there is no oil there. i think that there will continue to be plenty of stock of oil. >> how long does it take us to get back to $100 oil?
is that a genuine question? we are all being more efficient. u.k. production of oil is going down. is going upciency tremendously, as it is in airplanes. you have to believe that there's a possibility that you won't ever go back above 100 ever. i know i'm very old and ugly and have been in this business for far too long, but if you think about the last 40 to 50 years, we've already been above 100 for a very few number of those years . and china has changed. you know, china has huge growth in those middle 2000's. was very germanic happened at a time when the oil industry wasn't investing. happening at a time when we didn't have things like shale. that growth, that pull on resources has changed. so, the commodities super
cycle is gone and is never coming back? >> you can argue with technology and efficiency, but it's hard to see it coming back in the same way. >> in the time of one generation, what role does it play in the markets compared to now? consequences are what for price? short-term, wehe are not great at predictions. but i think that oil still has a major part to play, don't get me wrong. the think the gas, interesting one for us a little bit is that cold probably has a lot less of a part to play, maybe because of pollution or environmental reasons. gas, you see this tremendous supply coming out from fromalia, qatar, very soon the united states, it is going to be a really competitive fuel for anything to do with power. alix: that was and taylor of the vfl group.
welcome back to "bloomberg markets." you are looking at a route worsening here in u.s. stocks. the nasdaq is now of over 3%, 3% s&p looking up 2% to selloff as well, the dow is the least that of all of them, still off by 386 points. the s&p is basically now extending a two-day drop past 4% , bank stocks among the hardest hit, hitting their lowest level since 2013. where are people putting their money today? that story is gold. you are looking at a 10 year chart there, down by over 5%.
in terms of the market today, gold prices are up by 41 dollars, really reaching towards that $1200 per ounce with money yieldg into the 10 year as well. down below 1.8%. also watching shares of 21st century stock -- 21st century fox falling last year. the outlook does not look bright. last week the ceo of the fox networks group announced plans to cut $250 million in costs through staff buyouts. here to tell us more about the earnings after the bell today, the senior research analyst at callan and company. you say that this stock is a difficult investment. how come? quite you've got to issues with stocks. the television network business -- >> you've got to issues with stocks. -- two issues with stocks.
network models are not supported, people leaving that traditional bundle for cable. rupert murdoch was an empire , which is not good for external shareholders. locklin and james are now running the show. it's not clear what their priorities are yet. that's one thing that we will learn over the coming quarters. alix: what is the most important number today? people will be focused on advertising dollars. it's pretty clear in the near term that the ad market has had an up ticket -- uptick for television. had very strong numbers one week ago. fox will of course benefit from having empire broadcast in the fall of this year as opposed to not having it last year. i think that their advertising numbers could be good. alix: he will be hard-pressed as
a candidate to advertise anywhere other than fox? yeah, fox and other tv station owners will see a good lift in the second half of this year from political advertising. i just meant that fox would be the destination for republican candidate ad dollars. recentave been some hits. "kung fu panda three," i'm totally into it. "the revenant," that could be up for oscars. what you make of that? alix: the revenant -- doug: the revenant did well at the box office, but was also expensive. the profitability may not be as high. "kung fu panda close vote is produced by dreamworks. the impact on them is fairly limited. but in general the business for the quarter should be ok. overall media stock
severally underperformed. what is your expectation for the group this year? -- doug: we may be in the middle of them being a good place to hide. better.arket has gotten comps are easier in the first and second quarters of the year. these stocks have been her rent a sleep beat not that value buyers are looking at the first time in a long time that the stocks have been traded at a discount to the s&p. alix: doug, thank you so much. well, coming up in the next hour , the broncos were not the only winners of the super bowl. ♪
>> from a bloomberg world headquarters in new york, good afternoon. i'm david gora. signsof distress shown no of fading away. the s&p 500 headed for a two-month low with strategists cutting targets. >> on target is wrong. 2360 will be wrong. the question is, where should it the? to your point, where's fair value? oil getting hit hard, but the ceo of the largest independent oil trader said that he is not worried. >> the price at the end of the year would be what? >> 48. and then you can come back and kill me. i'm sure i'll be wrong. -- david: can donald trump -- donald trump hold onto his lead? and jeb bush -- jeb