tv Whatd You Miss Bloomberg February 19, 2016 4:00pm-5:01pm EST
alix: u.s. stocks closing mixed. oil falling for the first time in three days. joe: the question is "what'd you miss?" ,lix: inflation creeps higher consumer prices rise the most in four years. ecb -- says the next guest rally might have more legs. we begin with our market minutes. we are looking at the best week , so fars&p, the dow, a this year. the best day for the nasdaq since july. joe: now positive since november. tuesday wednesday, extraordinary rallies, much quieter in the second half of the week.
strong thehow beginning of the week was. the games for today came from consumer discretionary, technology, and consumer staples. moving intoey consumer staples, trading at 21 times earnings. risk on, things are awesome, i'm going to buy energy, but you're still buying safety. is kind of this crazy, a gain of 8% for the week on japanese stocks despite the fact that today japan fell 1.5%. alix: unreal. i'm taking a look at something moving in the stocks, trinity, a railroad stock. trinity industries in particular , earnings forecast for 2016 below estimates. worst datehad its ever, the lowest level since 2012.
the railroad stocks are not doing well and seeing groth. joe: you always have to worry that the bad has not been priced in. something else to look at, the treasury market, cpi report showed inflation was firm. we saw a nice pop in two-year yields. less of a pop and 10-year yields. the flattening has been a source of anxiety. when you see the short and gain more than the long end, the curve flattening. the yields are moving up, but more at the short end. , also month,yen one of the best months in a long time. it just goes to show how much
people have been piling into the safe haven. on the flipside, the mexican peso, the finance minister telling bloomberg there could be more surprise action like that rate hike we saw earlier in the week. traderslowthrough as suspect more intervention. story. love that yen hard it isws you how for central banks to get anything they want. alix: oil down over 3% today. it's interesting stocks worn down more when you see this slide in oil. a rig count should have been bullish, but it did not help oil prices at all. sugar is at a four-month low. rie ction fears, brazilian
eal, but aluminum staging a 2% rally. they can be a china indicator. that was surprising that was up. joe: oil did not have an impressive week, even with the saudi-russia headlines about a production freeze. still not out of the commodity morass. alix: those are today's market minutes. i'm going to stay with oil. i'm looking at volatility, and it is bananas. that is my professional terms are this is brent-implied volatility, the white line is the historic 10-day volume. it is over 90%. we saw that level in august when , but it isselloff not just the short term. you also have the 30-day average in orange, 76%. the green is 50-day, 64%. longer-term, 100
day, but still over 50%, meaning you are seeing dramatic swings continue day after day in oil. this is a stark reminder of the volatility. joe: that is why we talk about oil all the time on the show. it is such a good story. i want to talk about that cpi report, incredibly important, showing inflation is firming, beating on the headline and core. there are all kinds of measures internally that i like to look at. one of my favorite is core ,ervices cpi, excluding energy a real reflection of the domestic economy, not so much affected by international weakness, up 3%. another indicator is the blue line, core cpi excluding housing. we know rent has been strong for a long time. this indicator strips it out, and so this -- we see more signs of rising inflation.
alix: breaking news, the lithuanian president says the eu has reached a deal with the u.k. , drama over. there were lots of issues happening with this deal. unhappy withe banking insulation,: unhappy about the welfare and offense, and greece as well. -- poland unhappy about the welfare, increase unhappy as well. ask you aboutto the inflation data, tom. you saw the headline, some of these sub indices showing that
-- excluding rent, starting to see inflation, especially when you strip out energy. , actually the fed knows what it is talking about and these naysayers who dismiss it, maybe the fed knows what they are doing? >> the charts you showed are really useful in the context of a lot of other ways to think about inflation. one of the worst ways is looking at it in headline terms. a component that has a 6% weight literally explains 90% of the month-to-month swings. that is a flawed metric. i think core measures of inflation are much better. if were looking at cpi excreting energy, a much better way of looking at inflation. one of the things you see, let's take cpi excluding energy.
that is a pretty steady run wait for inflation. i would highlight one other thing about this report, because one of the most compelling things is that we were able to get some information about pce prices, the preferred measure of inflation by the fed. because of recent increases in health care -- let me digress. there is a massive gap that pi and corp.en course ece. core cpi anden core pce. mostu take cpi and the recent ppi and apply them to the will see a sizable upward drift next week. this,p some ideas around
people love to talk about inflation in terms of the fed target. that is the wrong way of thinking about it in the near term. should actually think about inflation relative to the fed's forecast of inflation for the current year, 1.6% right now. what will happen with the pce report, core measures will be at 1.6% next week. that is what the fed expected by the end of this year, and we are already there, so i think there is a little more inflation than people appreciate. it is not a massive inflation in thebut i think context of a fed that had already started a tightening cycle, i think this was the ammunition we were waiting for to suggest that the fed will continue to go come at the reality is that financial markets are getting in the way. alix: do financial markets need to reprice? >> here is the reality from what
is happening from a monetary policy perspective. i can lay out a really sort of simple yet elegant case for why the fed should go based on fundamental grounds. unemployment rate drifts lower, the inflation story, but the reality is the fed sees financial conditions widen. it istell you that because of a couple of factors but thatular, doesn't matter. the fed will respond to the brought widening in financial conditions, and you don't get a hike certainly in march, maybe june if were lucky. joe: the arguments that the fed is missing its goals, there has been more recession talk this year than i can remember in a long time. had you way those? dismissive ofn recession broadly in the united states.
the punchline upfront up front is that jobless claims are by far the single greatest indicator for whether or not you are slipping into a recession. penaltyw jobless claims recession odds at 5%. part of the problem people are having with this analysis is they are looking at i.ssm. worst metricsthe to gauge whether or not you are slipping into a recession. it has accurately predicted 13 of the last three recessions, so it has done a poor job. and could beses flagging of profits recession, but keep in mind that if you have a profits recession in the united states, we have had to and a half times as many profits recessions than economic recessions. years worth of data,
and it doesn't live. for me, i think that is part of the mistake people are making. they are looking at this 10% sector of total output. , if youanother thing look at the underlying detail within manufacturing, what you would see is that only 20% of industries are contracting. 72% remain in positive territory. keep in mind historically that you need 80% more of these industries to acts of be contracting to flag real recession. i think people have taken a couple of notions like manufacturing and really run with it a bit too far. chief u.s. economist at rbc capital markets, thank you so much for joining us and breaking this down. alix: a deal between a tiny banks and the european commission was supposed to restore confidence in that sector. why shares continued to fall since the deal was announced. recapping that breaking news,
>> first word news. the u.s. has filed a motion to compel apple to comply with a use by to unlock a phone a gunman in the san bernardino attack. a hearing is set for march 22. the congressional committee wants apple officials to testify on march 1. that is according to people familiar with the planning. president obama and wife visited the supreme court to pay their
respects to justice antonin scalia. his body is now lying in repose in the great hall. a funeral will be held tomorrow. militant group claiming responsibility for a car bombing in turkey's capital that killed 28 people. the group says it carried out the attack to avenge turkish military operations against kurdish rebels in southeastern turkey. the fight against islamic state shifted to libya, u.s. warplanes struck multiple targets, including a training camp and leaders. president obama directed his national security team to bolster efforts in libya. global news 24 hours a day powered by our 2400 journalists and more than 150 news bureaus around the world. back to you.umpton alix: "what'd you miss?"
italian bankshares getting hard once again. the main index falling 3% as investors are putting little faith in a bad debt deal reached at the end of january. the shares have fallen 17% since that agreement was reached with the european commission to help tanks offload that debt. your to tell us why we have seen this decline is a professor of finance and economics at the sanford business school. why has the market not responded better to these proposed rules to save italian banks. >> via tine banks are not very -- the, so you can tie-in banks are not very healthy. what we have to remember is they have very little equity and some losses, so what happens is that on the downside it looks ugly. to get the upside, and
you have downside also. the policy response needed to give confidence in the italian banks. ofthey have a lot nonperforming loans, an extreme level of nonperforming loans. there is very little how to absorb those losses, so what they are caught between is the prohibition on bailing out and creating a bad bank to losses on an and number of citizens who are unusually holding the banks debt, so they don't have a lot of choices. somebody is going to swallow those bad loans. some of those banks are zombies. to get faith in a
zombie bank. joe: it is 2016. the crisis of all these banks started years ago. people say the difference between the europe and the u.s. is that the u.s. had to take write-downs they got recapitalize. do this.d not is it really that simple, that matter of timing that explains why the european banks -- >> europe had a lot of things going at the same time. they have really awful regulation. ours is not that much better, ir's was bad. they allow their banks to get into this subprime crisis. there had to be a number of spectacular bailouts in a number of rich countries. after that, that is when they got into more trouble, because
they immediately rolled into another crisis, which is a massive merry-go-round of government bonds and bank bonds and bank debt, a symbiosis they never quite figured out. reallyblem is that they are in denial, both about how sick the banks are and how bad the regulations are. model in thisem terrible state, which doesn't help their economy. alix: you highlighted this to us , france had a lot of exposure to greek debt to read they offloaded that to germany and italy, now france is in a much better shape, but germany and italy are saddled with this debt. walk us through that. how did that happen? >> germany is a country that i want to highlight, it has a really self serving and flawed spin on the greek crisis.
it is a story that people don't appreciate. french, german, and swiss banks had a lot of exposure to greek debt. just like with sub crime, how did greece get to borrow so much? who were the lenders? private banks in european countries. why? for these banks, it was not a carry trade. it was an arbitrage. debt just likehe aaa mortgage bonds is considered doesut risk, see you don't uber tend it is as good as cash. -- banks tendn't to see it as good as cash. 2010, one of the sins was to
bail out greece with a back your bailout to offload all this debt come mostly on european citizens, including italy. the italian taxpayers are exposed to greek government bonds, and spanish citizens are also exposed, even though it was not their banks that lent to greece. that is what you see, how germany is blaming greece for it anding bad when france doug greece ever more into a hole right bailing out their banks and putting their throughs of the banks to taxpayers everywhere. joe: we have seen a lot of anxiety about the convertible bonds, to your one capital, the idea -- what do you think about them?
are they in panic or doing what they are supposed to do, or with eight never a good idea to begin with? >> all the above, really. like they wereng meant to behave. there is a risk. what is the risk? that they don't pay the 6%. on the downside, they behave like equities. they don't have the upside of equities, so they will behave like that on the downside when there is a fear that the 6%, promised,che bank that they will have trouble paying that. so they are behaving just like they were meant to. at the same time, they might not absorb losses, which is why the banks prefer them over equity. there's going to be a panic and a crisis just like last time -- joe: thank you so much.
come in to the iron ore market. analystsve seen some say this is a head fake. fore it is a hopeful sign the global commodity producers in general. maybe there is a pause in demand, and may be some supply coming online so that prices can find a balance. alix: agreed. declining,have been the market starting to reprice. bottom,ore can find a does that spread to copper, aluminum, zinc, nickel. most commodities are still rock bottom. alix: except as zinc. watch zinc. everyone's favorite metal. emerging markets finally hit a bottom/ ?
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france, germany, and britain. the final draft gives the u.k. a seven-year emergency brake. , allowing it to impose welfare curves. candidates chasing delegates and two states tomorrow. hillary clinton tied with bernie sanders on the evil of the nevada caucuses. in south carolina, donald trump has a big lead. the fight will be for second place between ted cruz, marco rubio, and jeb bush. and the featured guest on a special two hour addition of "with all due respect" tonight live from south carolina. peace talks will not resume next week, turkey intensifies cross-border artillery shelling. the author of to kill a mockingbird has died. global news 24 hours a day powered by our 2400 journalists and more than 150 news bureaus around the world. alix: a quick recap on how u.s. markets close. it was the best week this year for the s&p and the dow so far, and the nasdaq had the best week since july.
a stark reversal from when we had global stocks injuring a bear market last thursday. an unbelievable change. my favorite statistic comes out of japan. 8% gain further the week, a next her in a come back, even with the fact that in the u.s. the markets did not go anywhere for the past two days. alix: you did see a move into consumer staples, 21 times earnings now. are expensive because people want them so much in terms of safety. "what'd you miss?" are we at the bottom for emerging markets? they rallied along with peso and other emerging-market currencies come all this comes as commodity seem to have stabilized. an emerging market strategist says it could go further in the
near term. are we at a bottom? >> i think the markets are certainly saying that we are at the bottom for the time being. i think it is not so much that we have reached a critical level where everybody wants to buy emerging markets. i think it is because some of the drivers of emerging markets have turned around, the dollar weakening, commodity pricing bottoming out. they are being helpful. it depends on where these big extra trends in the commodity and dollar pricing goes. joe: let's talk about some specific countries and currencies. having a veryso strong week after that surprise hike. today, the finance minister telling bloomberg news that there could be more intervention , that the mexican central bank has the tools to continue to do more. this was a currency that are a lot of people like for a long
time and kept getting slammed. is this finally it for a turnaround? or is it just about oil and commodities? >> there are a lot of things in the question. the currency may go to lower again it eventually, but i think what has happened here is that the mexican peso has been extraordinarily weak, much weaker than the fundamentals would warrant, and i think the central bank was just letting -- wasn't reacting to that, because there was no passes through from the weaker peso to inflation, and therefore they did not see any particular reason to raise rates and what is a soft economy to deal with an inflation threat that did not seem to be there, and so i think the surprise about this week is very helpful to the peso short-term because what is important that they combined the interest rate hike with a nethercutt -- with another cut in fiscal spending to bring the deficit back on
track because the hammering the debt has taken from the price of oil. you pushing that if the peso too far, we will react again and intervene. our economists are not quite sure yet about whether this could go lower. this is a good rest bite for the peso in the near term. alix: at the end of the day, it has to do with oil. brent versus emerging-market stocks, they track one for one. why is this correlation so tight? puzzle we discuss a lot with our investors. we think it is simple. over time, the bulk of the major moves in oil price have been driven by demand, although the second half of 2014, when opec did not that output, the oil price fell sharply, that was an exception. but if most of the oil price
moves are driven by demand, people get more bullish about the global economy, more bullish about emerging markets, including the equity markets am a so that is what we think the linkage is good if you want to bring that down to where we are below $30 inl went late january, there was a real panic about the global economy, which is not good for emerging markets. oil has bounced 20% from its lows. the global economic scare is settling down and emerging-market react to appropriately. -- reacting appropriately. as i have been saying for several weeks, the best news we can get for em equities is a further rally in the price of oil, which we think will happen into the lower 40's. joe: you mentioned the scare over the global economy has faded a little bit, but one week ago people were saying this
central banks are out of ammunition, and the sovereign wealth funds are liquidating holdings. did anything fundamental change from last week, or is this the animal spirits of the market changing its mind for a week? >> i think it is the animal spirits of the market. , ands been quite volatile those two points you make about monetary policy out of ammunition, and sovereign wealth funds selling come argue really drivers of the global economy. what happened is everyone who andconcerned about china their management of the currency, rather than the economy itself, then we had some weak data in the u.s. which cause concern about the global economy. we think the global economy is fine. we just think it will grow slowly this year. clearly, there has been a little easing of that concern in the near term, but obviously that could come back. we would be very surprised here
if we end up in a global recession and the u.s. ends up in recession. that is why we are buyers of emerging markets in the near term. as a we mention oil driver, but what about the dollar? is aems like there correlation between the dollar and the emerging stocks. rallies,dollar emerging markets sell off. you could make an argument that at some point you will have a another flight to safety, that the dollar has been sucking up so much money and that will boost the dollar again. cause andll about effect. you are right. if there were to be another concern about the global economy, you would get a flight to safety for sure. our fx folks are arguing that euro will go to 116.
we feel there may be more surprises in the european economy than the u.s. economy. that will support emerging-market equities. we have argued for quite some time that it emerging-market rising,, and the dollar both 30%, so it became a dollar trade. we are seeing a turn in the dollar. , that'se seeing a turn going to be helpful for emerging-market equities. our forecast for this year is ,ore weakness against the euro providing support for the asset class. joe: we got this decent inflation reading out of the u.s. today. what happens if the u.s. economy , the inflation to accept, and the path of the fed rate hike is closer to what we thought on january 1 as opposed to last week, what does that do to emerging markets? >> that is negative for emerging
markets without any question. dia --ts back to the eye the idea that we will get back to four rate hikes, negative for em. we have cut our forecast for to 1.5.wth from 2.8 what ever the cpi is giving us in the short term, unless it is bad, we feel the fed is on hold until september, then again in december. always tends to do poorly when the fed is raising rates. economy to not. go into recession, to be on the soft side, the fed not moving, and that could impact em. sadly, that is a narrow path. raised on our forecast, we think on fed risk could be back the scene quickly.
that will support our views that em equities do better in the short term. alix: thank you very much. tightened its capital controls, spent almost 300 billion dollars of reserves and the last three months to prop up its exchange rate. next, whether these moves will be enough to stop these slowdown. ♪
100% or higher for 21 consecutive years. icahn has been losing value. the company is put on creditwatch negative, triple b minus. elon musk finally owns the domain name, tesla.com. it was unused for 24 years. elon musk had to settle for s.com.otor it is not clear if the engineer sold the name to elon musk. that is your bloomberg business flash. "what'd you miss?" capital controls could make things worse for china. that is according to our next yes, professor at cornell university and senior fellow at the brookings institution.
guest, professor at cornell university and senior fellow at the workings institution. why don't you think capital controls will work? puthat china needs to do is ento place to stabliz expectations, rollout fiscal and and make someres steps to convince markets they are pushing the economy in the right direction. if they just try to control the it willof capital, create more panic-driven flows of capital. new discussion about chinese capital controls came from japan's central banker.
isthis a discussion -- it understandable why japan might encourage china to do that as opposed to devaluing its currency. is this an idea that is gaining traction? capital controls don't have a particular good reputation in economics. >> certainly the landscape and -- thecussion of capital notion is that there are many emerging markets getting slammed because of the actions of the advanced economies central banks, and therefore emerging markets have to protect themselves. even if emerging markets and do everything right in terms of monetary, fiscal, structural policy, they can get slammed against the wall because of these very volatile capital flows. markets, you don't
have these conditions, so in china's case capital controls are a very seductive option. that what markets are reacting to his not the free flow of capital, but the fact the government does not seem to have the right policies and not able to in gender the confidence of investors. that is the fundamental problem that needs to be faced. capital controls can potentially make things worse because they send the wrong message about the government's unwillingness to take the actions it needs to take and instead use these band-aids. alix: under what circumstances do you think china might be forced to implement capital controls? are unwilling to take the measures necessary to support the economy or if they do take measures, both fiscal and monetary, and the economy the oppositiond,
to the reforms that have been talking about make it difficult to afford, then they may be if they arentinue hemorrhaging reserves. a more viable strategy is to think about letting the currency float more freely. the problem is the way they implemented the move towards a flexible currency in a very unfortunate move on behalf of policymakers created a situation against is working them. the big question is how do they get there. i don't think capital controls are a good part of the solution to that. joe: you mention the country needs to take domestic resume forms, easier said than done. beside currency flexibility,
what are some concrete steps that china could do to do with the lack of confidence, slowing growth? is a big, complex economy, and no one expects them to achieve big reforms overnight. what is concerning investors and analysts is that the notion of any momentum of reform, especially on the real side of the economy, the reform of the state owned enterprises, the banking system, the labor markets -- if they make a commitment, to take action, and in the short-term are going to use fiscal policy where they have room to support economic growth, then perhaps supplement that with a little bit of monetary policy, that will be enough to engender confidence. they are beginning to see some positive signs. joe: thank you so much. dubbed thes been
you will have some of the incas players descending on houston. playersof the biggest in the industry descending on houston. players fromiggest u.s. shale, opec, saudi arabia, since they couldo meet heads here. joe: the collapse in oil prices is the dominant story, but are there any other stories that will be interesting that you are watching for that viewers should know about? >> i love to see what the new technologies they talk about. show kind a new car of thing. they try to get in front of reporters and other people in the industry and talk about the new design that is going to save time, money, efficiency, so i
will be looking to see what some of these companies have to suggest and how well there are india's doing -- and their research and development is doing. alix: you talked about who would break cuts in production more. shale,e u.s. russia-saudi arabia, and the nigeria and like venezuela in dire financial situations. what are you going to hear about the rhetoric of those three? themu will hear all of focus on the future. i think it will be -- try not to express too much doom and gloom and try to stay positive and confident, and we can weather the storm, that's all you hear, especially the ceos of u.s. shale explores.
-- explorers. it is like they will all talk their own game. somebody is going to have to talk about trying to come up with something. i think they will try to go with their own game plan. joe: we have seen a fair number of events on the financial side of things, anxiety about bankruptcy, companies raising more equity to build up their cash cushion. how much is that going to be discussed, the financial environment, and the options for these companies? a factor.ll be there is a panel on the first day that will talk about some of that, financing options, merger and acquisition bankers on that panel, and so they will talk about what to do. art simply options
>> i am mark halperin john heilemann. and with all due respect, i am with hillary. tgif sports fans. although some candidates are dreading what comes this weekend, we are in south carolina, in columbia. this is our last day here on the eve of the presidential contest. the games are underway for their inlic and primary here and nevada.