tv Whatd You Miss Bloomberg May 9, 2016 4:00pm-5:01pm EDT
alix: i'm alix steel. -- s&p 500 inching out a gain in the dollar rising. joe: the question is, what you miss? we ask why she thinks our quality is still cheap. plunges afterlub an internal review found abuses tied to the sale of loans and a failure of disclosure. what is ahead for regulation. movie roster for the year looks strong but investors still concerned with espn. i look at the numbers ahead of earnings tomorrow. scarlet: some breaking news on lending club. the enforcement division is said toreview lending club disclosure. more momentum on this story after shares tumbled 35% today
dollars $.62. much more on lending club later on but first, our market minutes. a mixed start to the week. material and energy where the loggers. health care and utilities where the leaders. that would explain some of the move south in energy shares. no economic data to give us much of a direction. quiet.ey are really this has been consistent the last couple weeks. we haven't seen any real direction. actionhat you do see the , commodities and commodity stocks. the weakness in commodity stocks dad it wasweak trade around the globe. you have the mining index falling the most since 2008 and the bloomberg world mining index in the biggest decline since the selloff last august and u.k.
stocks led in part by mining shares fell again. it was his longest losing streak since january. copper and gold also getting clobbered. eye wask that caught my chesapeake energy, one of the worst performers in the s&p 500. exploreke may need to options to refinance debt or raise capital. investors thought the worst was over and they would have enough money until 2018 but the numbers say not so fast. joe: despite the fact that ,quity markets erased losses you see yield on the two and 10 year down a bit. the 10. those are the lows of the day. we saw them dip lower in finish out in the basement. scarlet: breaking news out of brazil. the impeachment motion will
proceed. there was some confusion earlier when you look at the brazilian real. that was the case before this latest headline. there has been much of a move following this latest headline about the impeachment motion set to proceed. the initial headline that caused that move was that the interim .hief a lot of questions over what happens next but it all boils down to this is a reminder that this will never be a smooth orderly process. alix: kind of fighting until the end. in commodities, read across the board unless you were sugar and coffee. you have the industrial metal crude gettingn, killed. gold was also low despite it being a safe haven asset. it is partly the chinese import data, you also had a stronger dollar. , this isof iron ore
the weekly chart going back for the last year. look at that drop off we have seen in the last few weeks. not only do you have some fundamental weakness but china is trying to shake out the speculators. alix: those are today's market minutes. let's take a deep dive into the bloomberg. you can find all of these charts using the function at the bottom of the screen. alix: i'm looking at something really fascinating. it's people daily newspaper in china. joe: this is amazing. the: declassification is big trends in q1 of the first planning year and that would -- and that is what that title says. this is an anonymous interview that spans pages in the newspaper, outlining what they're playing would be and it seemed like this unnamed person
was talking more about supply-side reforms, less stimulus in the market, taking control of structural changes. in may 2015, january 2016. unnamed sources are outlining an economic strategy, saying we are going for supply-side now. alix: this will be a 180. joe: there has been so much anxiety about the stimulus. all unbalanced and here you have this interview saying we are concerned about the debt, i don't remember seeing anything like it. alix: to see if we had that ship that can take place. joe: i am looking at the latest data on chinese imports and there are three lines on this chart. one is imports from hong kong, one is imports from japan, and one is imports from the u.s. imports from hong kong has
surged 200% year-over-year and it's not some huge demand all the sudden for hong kong goods. it's that this is representative of the outflows, you overbuild the domestic buyers in china to get money out of the country. eight is symbolic. you see this kind of -- it is symbolic. you see the ongoing pressure to get money out of china. scarlet: he does feel like certain parts of the stock market have a built in bid. this is from robert buckland of citigroup. he says stocks will benefit from their status as the yield asset for investors. the alle line is country world index, currently at about 2.7 3%.
the blue line is the 10 year yield, about one point 76%. this is the gap between the yield and the 10 year yield. you can see right now, the gap is three basis points shy of a one percentage point. joe: you know we are living in weird times when you buy stocks for the dividend yield. scarlet: exactly. you can see all of these charts and more on twitter. bring in a bank of america merrill lynch ahead of u.s. equity strategy. scarlet: every asset class seems to be stuck in a range, including equities. that has been the case for a while. that are bracing for change soon and you see the s&p 500 falling back toward 1850? what we saw in the first quarter is emblematic of a market that has very thin
liquidity. there is a negative reaction on headlines. let's think about what is coming up this summer. i feel like june is the vortex of negative headlines. you have >> it. there is a 40% chance of this happening. grexit.have > and we are heading closer and closer to what could be the most polarized election we have seen in our career. one of the things we notice is about six months ahead of november of an election year, peaks and typically then it trends downward. i worry that we not only have this very uncertain environment from a tax and spending perspective given we have two very different candidates running for president, but we also have headlines coming from
europe, the fed tightening into a process recession. typically, tightening cycles start with profit growth in right now, we have negative year-over-year growth. joe: there are some areas of the market that you like. one area you like is high-quality stocks. what does that mean? me, all you need to look for in quality is the stability of earnings, fundamental stability. the idea is when you buy a u.s. company, you are paying for the underlying earnings potential of that company. if earnings are stable and nice, you should pay a premium for that predictability. you swing from losses to profits and you should probably be compensated for that risk. thatwhat is unusual is stable earners are trading at a discount to volatile earners. cap techok at the big
companies, these are the most stable earners around. they have positive net cash, no debt, they were the only sector that managed to grow earnings during the financial crisis but they are still trading at the lowest relative premium we have seen. there is an opportunity to buy cheap quality without overpaying and actually capture that underlying earnings power rather than just overpaying for perceived safety. the: this chart shows high-quality versus low-quality stocks. at what point do you see high-quality really starting to outperform? low-quality has been holding up. still relatively sensitive. i think next time i come and talk to you guys, that white line will be above the orange line. joe: we have to plan this
segment now. guest: we will make a date for it but i think we are heading into an environment where we are paying a premium for quality and being compensated for risk, which is some really haven't been doing for 15 years. scarlet: does this mean value stocks will continue to outperform momentum stocks? guest: momentum still looks dangerous. if you think about last year, a year where a very small subset of stocks crushed it in the rest of the market was basically flat. i think we are done with that. we ended last year with growth. stocks super crowded. momentum stocks got really expensive. still expensive. this chart shows the best performers over the last 12 months. we're at pretty stretched levels in terms of valuation. i like value. companies generating cash rather
than using cash -- if you think about growth stocks, they need cash to survive but value companies tend to throw off cash. one of the big macro stories right now is the weakening of the dollar. everybody expected this to be the year of a strong dollar. what does that mean for international companies that get a lot of their sales and foreign earnings? hurt. some get some don't. what has been the theme over the last few years is every stock has sold off on dollar risk. i think right now, there may be some interesting opportunities to buy cheap multinationals that are discounting a lot of strong dollar risk but might not exhibit that. multinationals all actually posted much better growth. at thef you take a look difference between three-month
the guidance of directional and multinationals, you are starting a white bar of coming in below zero because multinationals are starting to guide the other -- better than the domestics. the dollar defied all expectations in the first quarter. those were the companies where we see some strength. that is an interesting pocket of opportunity. scarlet: the fed becomes less relevant in this environment? the risk rally we have seen has h.en e guest: every round of stimulus we get, every time janet yellen gives us his rhetoric, the market rallies but it's a much lesser rally than the one before. it's almost like we are at the of easyhis long road monetary policy and it's hard to imagine what levers are left to keep this thing going.
negative rates, maybe? never say never but i think borrowing in an environment where we go negative on u.s. rates, it's hard to imagine this risk that continues on easy monetary policy. it gets better. our year end target is 2000 so i think we could see a bit of a summer slowdown. alix: thank you very much. still ahead, saudi arabia in a government shakeup. we will tell you what it means for opec and the markets next. ♪
this will come in to play. the last will they be call. they say the rest of the market, you figure it out. it has been intensely private about finances up until this point. >> saudi arabia is the only will be more we transparent. we need to have a foreign money. >> you don't want one where you are going to lose 2 million barrels because of political decisions. isn't that what will
happen? if they are using it to curb supply and demand, isn't that exactly what will happen? we will do what is in the best interest of saudi arabia. we will make a profit regardless. the rest of you, sort it out. of anxietywas a lot early in the year, late last year about saudi arabia's foreign reserves. dissipated somewhat. is that story dead or are we talking at some point in the medium or near-term future about depletion of the sovereign welfare -- will fund? guest: they have changed it around massively. it's all part of a massive transformation fund. of $60.one out at the same time, they are trying to do very ambitious things.
if he heads back to what i think the saudis expect, around $60, then i think that will subside. i think the speculation has been premature but maybe into next year and the year after, especially because that is the test on these reforms we need to see. will the saudi exchange or make progress towards that? alix: what does that mean for the longer-term oil price? we canlonger-term, basically say saudi arabia remained stable and we need to look at that non-opec supply declining. as opposed to just thinking will saudi arabia step in and save the day? alix: huge transformation. thank you. great to have you. scarlet: this hour, we heard the
alix: new developments on the saga over the brazilian president impeachment process. the head of brazil's the senate saying the impeachment motion will proceed. this comes after the interim lower house president said he has an old last month's impeachment vote in the lower house because of procedural irregularities will the scarlet: what is next for brazil? let's ask julia. does this mean the senate can go ahead and vote as early as
wednesday? guest: the scheduling voting on wednesday is kept. we are expecting them to start in the morning. decision, we are expecting voting to proceed. does the head of the senate just ignore what the lower house said and can this create some complication? guest: as we are learning, there could be complications every step of the way. he said the president of the lower house cannot overturn a decision made by the lower house for. in that he is untimely making this decision because the senate has had the impeachment process for months and he now can't simply overturn by himself. know what the
specifics the head of the house said was improper about that though? guest: he mentioned a couple things. overis the person who took on thursday. he basically said the parties have direction and said lawmakers were not supposed to announce their votes before sunday. alix: who is actually running the government right now? guest: a great question. reset was in the middle of an event when the decision came out. she said she didn't know what the implications were and the information wasn't official. we are really just waiting for the impeachment to happen.
scarlet: did the economic fundamentals support that? guests: the economic fundamentals are yet to show any improvement. is -- we all know how long the rally will last. but the market is hoping for is there will be a strong economic team to push reforms. joe: has the chaos that surrounded this vote changed the polls? support for impeachment fell from earlier this year on the latest poll. it's still around 60%. scarlet: how will this impact the rest of the lending space?
ark: doj says regulating bathroom habits of transgendered citizens is illegal. attorney general loretta lynch announced the lawsuit a few moments ago. >> this is about the dignity and respect that we accord our fellow citizens and the laws that we as a people and as a country have enacted to protect them. indeed to protect all of us. mark: the republican governor says the government is
overreaching. the department had given the state until the end of the day to scrap the law or risk losing millions in federal funding. donald trump named chris christie the leader of the transitional team. governor christie endorsed mr. trump in february after dropping his own presidential bid. tape -- to tear findssociated press poll the polk county. kerryary of state john says a new agreement between the united states and russia restores a nationwide truce in syria. withtary kerry meeting officials, describing a joint statement calling for the cease-fire to be improved and expanded. it's unclear whether russia or
syria agrees the secretary kerry's interpretation of the agreement. dayal news 24 hours a powered by our 2400 journalists in more than 150 news bureaus around the world. i'm mark crumpton. scarlet: let's get a recap of today's market action volume and u.s. stocks lower than average. about 60% below the 10 day average. not much movement when it comes to where the index. losing 35 points. a rally in health care shares offset by declines. joe: continuing this theme we have seen over the last several , generally pretty flat overseas. we are down earlier and we came back. alix: and commodities, started in china after that relatively weaker export import data hit all of the commodities pretty freeport the worst
performer on the s&p. shares of lending club down 30% today. a laundry list of negatives. the enforcement division said to be reviewing lending club disclosures. the ceo resigning and an internal review finding abuses tied to the sale of loans and failing to disclose personal interest in an investment fund. what does all this mean? tracy alloway joins us on the phone from dubai. you have been following lending club for years now. what was your biggest take away today? guest: basically, it just came as a shock. we got first quarter earnings from lending club and they looked pretty good besides the major news that the ceo is resigning because of the problems you outlined. i cannot stress enough what a
been in thee has past four years, the pioneer of the entire business model. he was one of the driving forces behind rebranding it to marketplace lending. really really huge news for the entire sector. joe: so selling bonds that want werely the buyer but they getting, investing in this outside vehicle, the company taking a stake in turning around and buying lending club debt. when you hear this story, it feels like the same old wall street scandals reissued. is the future the same as the past? started outto-peer as this grandiose, idealistic plan to directly connect
borrowers with lenders. the idea was after the financial crisis, we weren't going to trust the big banks and we would all will lend to each other. the interesting thing is new technology and online platforms were supposed to help that happen but as the industry group, big investors, big institutional investors became involved and it kind of became the same old story. i still love to characterize it as regulatory arbitrage as a way for investors to get high yield and uncorrelated assets at a time when interest rates were really low. the question the industry faces now is whether or not these problems are suggestive of a wider difficulty in the business model and whether or not the business model will survive beyond the past couple years of low interest rates. lending clublems is facing now, is this an
indication on the faculty sector cannot keep growing at the same pace in an environment that will get more difficult? guest: this news has, at a terrible time for the industry. in the first quarter of the year, we saw a lot of nervousness around higher-yielding credit, including consumer loans and we saw lending club raise rates on some of the risk here loans to try and compensate nervous borrowers. we've also had lawsuits, additional regulatory scrutiny. the bad thing about this phase with the sec involved and all of these unknown risks laid out by the company, a lot of institutional investors, the lending who are funding club and other peer-to-peer platforms are going to get even more nervous. we have heard some of them are already pouring over existing transactions, trying to figure out whether or not anything is wrong with those.
that is a big problem for the industry because they have been trying to diversify their funding as much as possible in preparation for a downturn in the credit cycle. joe: the mention the way to characterize these businesses is regulatory arbitrage. do you think we will see for the regulations that close that? what do we have to expect on the regulatory front for these marketplace lenders? guest: we have seen some noises, specifically some recent lawsuits that target the heart of the peer-to-peer lending model, and it all use the same bank in utah to extend loans. they don't actually take risk on their balance sheets. ,f that model gets challenged life becomes very, very
difficult for peer-to-peer toders and it's difficult see the news out today will be positive in regards to that model. his: how do we understand actions at lending club and other companies? i would assume those practices are in other companies, for example. guest: if you're asking if it's a one-off, it's a good question. i expect a lot of investors will be scrambling to figure out the same thing. the thing is he is a next lawyer, a very smart guy. it's kind of baffling that he's gotten himself into that situation and we will have to hear more details of what exactly has happened but it is certainly doesn't look good. and on the idea that lending
club was considering investing in a company that someone had a personal interest in that was undisclosed, that's really confusing. they were thinking about investing in an entity that essentially bought lending club loans. lending club putting up its own carpet the -- own capital. reeks of a friendly backdoor deal. scarlet: great stuff, tracy. thank you very much. us fromloway joining dubai. coming up, labor share of gdp is on the up and up. we will discuss next. ♪
scarlet: it is time for the bloomberg business flash, a look at the biggest business stories in the news. a judge has dismissed a case competency of redstone. he testified he wanted his daughter to make medical decisions for him if he is incapacitated and no longer wanted his ex-girlfriend and his life. erzier saidecision, h she is suing. alix: beholding --
j beholding has already built the coffee empire. has persistedht years after their deaths. made out as a serving a 150 year prison sentence. that is your bloomberg business flash. "what'd you miss?" things may be looking out for labor after workers are grabbing a larger piece of the pod. we spoke to george perks. on, why is labor share of gdp rising? seeing an're imbalance between the supply and demand for labor. demographics are finally favorable to labor after basically a generation or more of being a headwind for labor, so you had a massive slide in
u.s. and across the world and that is starting to atw down and will reverse some point. what you are seeing is labor is able to negotiate and that is an implicit term, negotiate. joe: let's step back for a second. we are talking about labor share of gdp. what exactly does this mean and what have we seen lately? guest: we're talking about the compensation of labor as measured and grossed a mystic income and you can compare that. the white line is compensation share of gdp and the orange line is wage share of gdp. joe: compensation includes benefits. guest: right. basically what we are showing is for a very long time since the late 1960's, there was a trend. people orat was getting more compensation in the form of health care and pension but that has reverse and nonwage
compensation share of gdp has been flat for quite some time. wages are where the labor share of gdp is really accelerating. alix: he point out real compensation is up 2% on an annualized basis but you also say we have gdp growth up 2%. does that kind of acceleration mailed with the gdp world? guest: you can have fast compensation growth without having fast total economic growth. is lowerhat manifest productivity and that is what we have seen. we see a reallocation across sectors of the economy toward lower compensation -- lower productivity sectors of so away from any fracturing and toward services. there is only so much that can be done to boost that activity in those services with our current technology. part of it is a shift in terms of total worker productivity but it's important to understand
it's been a shift within sectors. scarlet: we still haven't figured out whether this change is structural or cyclical. how much of this rise of labor share of gdp is structural? guest: it's hard to say. i'm a pretty strong opponent of the secular stagnation thesis. i think that a lot of what we have seen has been a function of low investment share of gdp and when you have low investment, firms send a giant signal to invest. they are told labor was cheap and you are able to squeeze as much as you could add of that and it's no longer cheap. and that is the only way you can increase capital is by increasing investment. that is true for businesses and government. the combined net share of gdp is relative. joe: one of the main anxieties
every quarter, they're like is this when they will roll over? is this heart of that trend, rising labor share, more requirement to invest and we see corporate margins start to shrink? speaking, iflly you see higher investment, those are liberal resources that are being employed to capital instead of being deployed into production of current assets -- current goods and services. impliest of implicitly lower profit margins. you are expanding fixed assets as opposed to running on a capital model. an oil refinery instead of a gasoline station. is, i think the short answer
if you have a higher unit labor cost, it will be bad for margins. the question is how bad and will be higher and gdp offset that? upl firms listen and drive inflation through higher investment and sort of stabilize everything that way. alix: is there a tipping point for that? if wages rise 5% or something? guest: you can chart labor cost versus gdp or versus recession. i think that's a little simplistic. i don't think there is a magic number where if competition grows this amount, firms will slash production. i think if you see it in strong -- which comeons it hard to characterize this demand as strong but it's not weakening dramatically. that's a very different picture from an economy that has gotten overleveraged, scrambled for too
many resources and now we have to protect profit margins. it's possible that is what happens but it's not the only possible outcome. scarlet: thank you so much. alix: coming up, disney's "captain america: civil war" kicked off with a hundred $82 million debut. we will break down disney's business next. ♪
quarter. walt disney is the focus of today's "numbers don't lie." thank you very much to "star ars." that movie has made more than $2 million at the global box office alone. and disney's movie roster for the rest of the year looks very strong. you have "jungle boo" and civil war." "civil here is the potential problem. the moving business makes up just 13% of disney's operating in 2015. cable networks make up 46%. key to thath is
cable business. espn and its sister channel generated more than $9 billion in 2015 in affiliate revenue. higheruld command a 10% monthly affiliate see this year $7.31. this position could expose it to a high level of risk if tv bundles lose favor. it costs a lot to obtain sports content. disney has $53 billion in sports commitment for the foreseeable future, which is highest among its peers. and we will follow all of this and disney's numbers when they report earnings after the closing bell tuesday. scarlet: let's bring in paul sweeney for more on the disney. it is going to come down to the cable networks and espn for disney and to that end, disney
is more memorable to swings in the economy and the trend in advertising pricing. that the good news is advertising is actually pretty strong. it weakened up a bit last summer but since, it's been improving. that should benefit disney but when you look at espn and a cable network business, it's primarily about espn and the number of subscribers. the affiliate revenue at espn is extraordinary. growth business for them but if you lose subscribers -- like a disney has reported at espn, that could set up a revenue risk story. i think that is what stooped investors last summer and it continues to be a bit of an overhang for the stock. despite the huge blowout numbers , the stockx office year to date is still flat.
joe: what is the key number to watch? what is the first thing you will look at? thing will bet subscribers. disney and espn has lost a couple million subscribers. we will have to see that trend and how the comcast companies of the world have been adding subscribers. we may see a turnaround for some of the cable networks and we will look at the advertising growth rate for the cable networks for disney. alix: what about succession? guest: this is a company that arguably, before this was really a it case study in arguably how to do a succession planning very well had some plans and