tv Whatd You Miss Bloomberg May 17, 2016 4:00pm-5:01pm EDT
alix steel is off today. [applause] closing u.s. stocks lower today, the s&p 500 has its worst day in weeks. joe: the question is, "what'd you miss?" scarlet: writing demand and falling output, the worry about the calls. plus, the biggest headline jump in a month over month inflation within years. scarlet: changing environments for hedge funds, what is driving it and breaking down the crowded trades out there. we begin with our market minutes. a big decline for the dow and nasdaq and set -- s&p 500. many industry groups are lower. within the dow, 27 of the 30 names in the red. sales as theof
quarter progressed really hit the company among all these retail concerns. joe: an ugly day all around, consumer staples losing, consumer discretionary energy being one area that was positive. in looking for companies or sectors that did not decline, take a look at that xle. oil and gas companies make up the only sector that did not drop. this was along with oil prices. also, transportation needs seemed to decline. shipper reaffirmed its guidance, but rising oil prices ending --t demand, improve their oil barge business. joe: in the government bond arena, we've been watching a spread between the two year and year at its- ten
flattest level since late 2007. 2-10 spreadsheet continuing to flatten out today. data, thehat cpi housing start pushing the dollar firmer against the yen. perhaps a sign that investors are cutting back on negativity surrounding the dollar. joe: on the commodity front, we mentioned energy stocks. one of thing down today, milk prices. this is good news if you like serial, down to its lowest level since 2010. there is your household deflation. on the flipside, oil having a positive day. we mentioned energy stocks in the green. uppite that selloff, crude 1.7% on the day. scarlet: those are today's market minutes, let's take a deep dive into the bloomberg. you can see the function at the bottom of the screen. you have something on inflation?
joe: earlier today we got that latest cpi report. a bunch of different ways you can look at the latest inflation data. the white line, cpi services, ex-energy. we look at the services, which of been firmer. down year-over-year, but up 3%. atdline cpa, the red line the bottom jumping up 1.1% year-over-year. housing, rent down a bit. that is that green line, try to strip out the noise. ever so slightly from previous months. not a solid direction one way or the other, but i generally work. does not look blazing hot just yet. scarlet: not a game changer, but things are moving in the right direction. joe: these measures have been up for a wild. scarlet: we're looking at
treasuries, the white line tracks foreign holdings in the u.s. treasury. but the usual suspects -- china and japan. they did not exactly drive the surge. the countries reflected custodial holdings for investors. since november you see it increase from cayman islands, the u.k., luxembourg. institutional investors dominate these increased holdings. this accumulation could turn to a net selling more quickly if foreign holdings are maintained by these official institutions. they could easily exit, as well. the paltry flipside, 1.7% looks juicy compared to what these guys could get anywhere else. maybe it is an attractive investment tool. scarlet: get excited. a pharmaceutical company
exploring their smaller cosmetic and pharmaceutical aspects. the canadian drugmaker scrambling to raise cash and , a dermatology company they acquired in 2013, and another that treats advanced prostate cancer purchased last year. consider selling its businesses to reduce a debt load. we will hear more from you as we get more information. but it had a bit of an effect in our after-hours trading. is, how much is real if they can't keep hiking prices aggressively? they have debt, so if they can sell assets, perhaps it is a good time. scarlet: they can't exactly borrow more. broader, back to the natural picture and talk of inflation. we have the inflation expert michael ashton.
for joining us, what did you see in the cpi report? is it starting to build, or will he get to the feds 2% target? michael: the core cpi number was seven or eightut in the month last year. had --ack mr., we have this year, we had high numbers in february and march. the trend is higher, as you pointed out. scarlet: in the fed points of different numbers, as you did earlier. i was talking with michael at j.p.the chief morgan, he said energy prices have an impact on these expectations. but food prices have a larger influence. i can't help recalling your
chart on milk prices. do you put much stock in them, do you think these are significant readings? michael: no, i really don't think so. the way individual forms inflation expectations is looking at the prices they see every day, and they see a lot of. they look at gasoline prices, they look at gasoline prices, milk prices. and those form a fairly small part of the overall consumption basket. things like used cars and trucks, rents, or large pieces of their consumption. that is because they don't look at them all the time. scarlet: i like that you said that they are adaptive, mirroring recent trends. will we see wages start to move up a little? and this latest cpi update the ratio of the last few months mean we will see in blood -- inflation expectations climb more as a result?
michael: we are seeing gasoline prices go up in the past few months. the largest category was motor fuel, categorized at 120%. they have gone up quite a bit. that feeds directly into people's perception of what is happening. disproportionate amounts compared to what they actually consume. joe: looking ahead for this year, the market has virtually no chance of a rate hike in june, about 50%, if any at all. if you see inflation progressing, given that the fed is so focused on it, you think that it will end up moving this year? michael: i think the fed will tighten once or twice. could get three tightening's this year. i don't think it is because of inflation. there are fed officials, governors who care about
top, the, but at the chair seems to care much more about growth and projections of growth than she cares about inflation. it has to get pretty bad before that would happen. scarlet: to your point, joe, the expectations or also a rate increase on the bloomberg are now 29% for july, whereas yesterday, they were only at 19%. which is perhaps why we saw the selloff. scarlet: when it comes to investors, how would you position for this uptick in inflation, and the possibility the fed may decide to move later this year? are two parts of the investor's basket, the high risk side and the low risk side. on a high risk side of things where you have equities versus commodities, you are now starting to see a sea change
where things have been going up, and it is time for it to go the other way. on the short end of the risk spectrum, we are at levels of inflation expectations embedded in the treasury bonds, where if you owe nominal treasury bonds, there is no reason not to subsidize. enduringael ashton of assets, and author of "what is wrong with money?" valeant exploring the sale of some of its smaller pharmaceutical and cosmetic assets. at him as a bloomberg news who works the story joins us now with more. this can be a huge surprise that they were looking to make some disposals. ed: the big one was bausch &
lomb, that could get sold back. they said they would hang on to that. these are much, much smaller things. how significant is the debt burden for them. how much concern is there at the company about their ability to service their debt, and how much do they need? ed: we've seen the stock trade down as a as possible for months now. they are struggling, obviously. the strategy has been shown in this case to be very unsuccessful. but the debt is a bigger issue here, and that is the reason the company is under so much pressure. they have an enormous debt burden, and this could in theory be a micro company at some point in the future. they do need to pay down the debt, they said they would be very focused on it.
they has said it will be a priority. there and the process of identifying assets that they can potentially sell to reduce that. theywhat we understand, are under consideration. he was: you mentioned known for building of the company through acquisitions. what evidence do we have that he is as good of disposing of assets as he is of acquiring them? at: not very good so far. choice.he has no they have to dispose of some assets. there are some things that they probably do not want to let go of, but they just need to pay down the debt. at the moment, he is still very new, so no decisions have been made. but he is also reviewing different things, and these
assets in the portfolio are the ones they're focused on right now. you think if this deal happens that this is the beginning, or could there be further active sales down the road? could this stabilize things and reduce pressure? at: i think this is just the beginning. we estimated $1 billion, that goes some little small way to reducing their debt. they need to change the way they do things radically. coming up, oil markets sending mixed signals. pricesand nigeria driving it. we will get answers from energy expert phil verleger. ♪
mark: i am mark crumpton, let's get the first word news this afternoon. define the white house in saudi arabia, the u.s. senate has passed legislation to allow 9/11 victims and their families to sue other countries for their role in the attacks. white house press secretary josh earnest said today it is difficult to see the president signing that bill. >> this bill does potentially open up the united states to a range of unintended consequences, it risks our national security, and makes it difficult coordinate with allies , and it risks our assets and maybe even our health. mark: they posted saudi arabia's at $116.8ngs, billion. reportedlyials have
threatened to sell their stake. the role in a potential hillary administration, he wants to help parts of the u.s. that are struggling economically. mrs. clinton has said campaign events, her husband would be charged with economic revitalization. he told the new york times, he would not have a cabinet position. amtrak will review findings by the national transportation safety board on what likely lead to last year's deadly derailment in philadelphia. federal investigators said today the probable cause was an turneer speeding into a because he was distracted by news that another train had been hit by a rock. said the cause was the lack of a speed control system that would slow down the train even if the engineer tries to speed up on a curve. eight people work killed in that accident. world and regional powers in more than 20 nations held talks in vienna today to try to make
the fragile cease-fire in syria more comprehensive. factional divisions with competing agendas keep getting in the way. one key issue was whether or not to keep president assad in power. global news 24 hours a day, powered by our 2400 journalists, in more than 150 news bureaus around the world. i am mark crumpton, joe, scarlet, back to you. scarlet: "what'd you miss?" wti crude climbing to a high. we will show another designing u.s. stockpiles. you'd be the first back to back weekly decline since december. at the same time, supply losses in canada and nigeria. the energy consultant phil verleger joins us. we talk about supply disruptions in canada and nigeria, they grabbed all the headlines, but it goes further than that, doesn't it? canada is new, nigeria's
new, but -- venezuela is in it, as well. 1.8 or 1.7. it looks like we have drawn inventory globally. the industry is behaving that way. prices will keep going up as long as we keep drawing inventories. they won't go far because inventories are so high. we have about 500 million is fiveof oil, and that or six days of global consumption, which will take a year or two. if we keep cutting production, just like a drought affects the tornadoesorn, or affect crops, energy is just the new corn. if you think of it that way, it becomes less interesting. joe: you mentioned venezuela and production numbers there are probably lower than people think. it seems the day after day you hear more stories about that
economy going into disarray. are you concerned that supply is going to drop even further? philip: i think it will drop a lot further. i put this on my website, because it is so hard to cover venezuela. if you talk to the people trying to cover venezuela, it is almost as hard as covering north korea, he can't find food, there are riots and everything else. anyone covering that should get extra pay. i think venezuela could go all the way to zero. it is just falling apart. they don't have any investment. scarlet: that is not priced into the market right now. philip: not at all. scarlet: we saw them treating it as a tool for growth, specifically china's appetite. philip: trading is a proxy for crude. i thought the stories, and they were moving together. but this is a correlation that was therefore a wild.
i don't think i see anything, i have been doing this for 40 years, not going into its economic activity. joe: as you said at the beginning, it is a mainly a supply story. are there any demand decides that are important? if tomorrow when the data come out, everyone will say u.s. ethylene consumption is up 5% or 6%. the numbers when you dig into them are 1% or 2%. i think the oil demand is up a little. a supply story. demand will come back, but we are not consuming as much oil and gasoline. when you look at the figures that came out last week, and gas station sales, that pointed to a lower sales number. eta --blem with the doe doe data.
do you have a sense of where will bought a mac? -- bottom at? philip: you see the doe numbers and read the state numbers from north dakota, the texas numbers, and there is a wide difference. was a huge there gap, estimating a drop in production. doe's calculation, it is a random number. people put too much confidence in it until we get actual numbers. thank you for joining us. scarlet: we will have much more on goldman sachs and their oil call later. up, the british pound is
emerging market currency. em currencies and vice versa. this is a 50 day correlation between sterling and the index of em currency. green indicates positive correlation, currently at .34, a perfect correlation would be 1.0. is a pretty strong link here, which suggests the pound is more vulnerable in the event of market turmoil. joe: it speaks to how people are thinking of the pound this day in a runoff to the brexit. it is not a safe haven, not something you want to grab onto when you are nervous. scarlet: measures that implied volatility have climbed to six month highs. a fun fewcould be weeks. i am looking at gold, which is having a fantastic year so far. -- chart looksks
at the functionality. you can see it is off to its best start. this is the last 10 years of old i am looking at on this chart. each one starts at zero, and you have it percentage change. gold is off to, far and away, its best time since may. going back to last december, people absolutely loath to -- loathed gold. but it has been climbing. this is a good year for the gold. scarlet: and small signs of inflation. is holding off, the brexit, nervousness. scarlet: coming up, we'll be hearing from jeff currie, the
mark: i am mark crumpton, let's get the first word news. the u.s. senate has blocked forident obama's request $1.9 billion to combat the zika virus. 47, with six 50- votes needed to proceed. from thebe offset preventive health care funds. the white house has threatened to veto the bill. donald trump is about to get his first real attack from the clinton campaign. tomorrow, a pro-clinton the super pac will begin airing its first tv attacks. plans to spendsa $136 million advertising against
mr. trump between now and november. they focus on his statements about women. the head of an australian search team says the missing malaysia an airliner may never be found. martin dole of australia's transport safety tells the guardian there is some possibility of success. a multinational team has been searching the indian ocean, but it disappeared more than two years ago. promising to listen to hong kong suggestions regarding its autonomy. the chairman of the national people's congress is the highest ranking chinese official to visit the city since pro-democracy protests two years ago. hong kong police are on high alert during the three-day visit. global news 24 hours a day, powered by our 2400 journalists, in more than 150 news bureaus around the world. i am mark crumpton. joe, scarlet, back to you.
scarlet: let's go to a recap of today's market action. down for the major indexes. deepening in the afternoon. we have data on inflation that convinces us some people that that may be in a better position to raise interest rates until june or july. joe: we saw a bit of an uptick in expectations of a june rate hike, but the expectation is that there will not be one. big losers, consumer stocks, consumer staples, consumer discretionary's among the worst. the worst performing sector and the s&p, energy, as oil was up 1.7% today. scarlet: valeant shares rising in after-hours sharing after they reported they will sell some of their smaller cosmetic and pharmaceutical assets as they try to raise cash to reduce debt. "what'd you miss?" first conference
taking place in palos verdes am a california. we talk with jeff currie. alix: jeff, great to see you. your calletation of was short-term bullish, long-term bearish. break it down. jeff: our average price forecast did not change. there was some supply disruptions going on. we put some of the bearishness into the first quarter. the conclusion is to think about the half-life of these different disruptions. canada is likely to have a short half-life. nigeria, likely longer. we have to prices, like iran. that drives bearishness going into the first quarter, as well as iraq. you put it together, an $50 range.t of $45- said $50, butntly
we are bringing the dollar away from it now. do you think the market has run up to far, too fast? million euros a day out of canada, i am shocked of market is not substantially higher. the question is why. inventories are still so high that a lender can turn to inventory to meet its needs to bid up nigerian oil and canadian oil. one chart that stood out to me in your report, we can bring it up. it has to do with the imbalance in the capital market. it shows how much equity and sincerowth we have seen the crisis has moved higher. what is the significance of all the debt that emp companies in the u.s. have? they still have access to markets right now. that is the concerning aspect. barrele have seen the
market rebalance itself on one side, the capital market on the other side has done nothing to rebalance itself. they still have access to debt and equity, which says that even if we do get a recovery on price, the capital can be used to produce further supply down the road. alix: and if you have a lot of debt, you have to produce to pay it off. jeff: absolutely. cash flows are important. in some cases, they could make sub economical decisions. i will say then, the coast is clear. but, right now, we do have a rebalancing of the barrels that does not reflected in the capital market. to happen,has investors have to become bearish on giving money to oil companies. what is the five at the conference? -- vibe at the conference? the alternatives out there
are not that appealing. even if there is a potential for prices to move up to $60 a we are and given that $50 now, it is not substantial, historically. relative to other types of investments, oil still looks attractive. when you think about how to cut that capital off, you have to think about the context of relative investments. it boils down to, you have to pay down those expectations. alix: meaning? to diverge, it is an important point that in the last week, we have seen 50 million barrels of selling on the back end. alix: wow. jeff: if the market tries to get up to that $55 range on the back end, producers come in to start selling and hedging out that risk during when we think about whether we need $50 or $60 a barrel to bring on supply for
2017, all you need is a strip to get up there. they cannot lock that in over 2017 and still end up producing, and you end up with much lower stock prices. the key is, it is difficult for that long and to get up into that $55 to $60 range. you have hedging, a lot of debt, so they need to pay that off, and investors are more than willing to give money to certain emp number -- companies, because there is nowhere else to put it. what is the trigger to fix that? jeff: the only thing that will fix that is some kind of capitulation in terms of expectations. alix: future prices? jeff: yes, future prices. you just have to get the capital out, and that his expectations. given these supply disruptions in canada and nigeria right now, expectations have increased tremendously. i want to emphasize, the market is trading rationally.
in the trying to price spot shortage today, and not trying to price in the future. i am happy to see the market is behaving rationally, but that has to do with reducers selling of the back end. alix: producers are smart, markets might not be. preventingt is anything from happening in this space? jeff: i would argue it is coming it is not together. part of the reason why, there is not enough pain in the industry yet. companies still have access to debt markets, and equity markets, and can survive on their own without trying to find a suitor with a large enough balance sheet. it is an indication that these capital markets are still out of balance right now. that white private equity has not come into the market? private equity has raised billions of dollars to fund energy. equity has been
slowed because they don't have access to the high-quality assets. one of the strategies they are employing right now is to buy the single debt that is attached to the assets. they will do well if it recovers. they have the capability to take delivery of the assets if the company defaults. so they have both sides of the trade. alix: how does that play out? will he come out in full force later down the road? jeff: if you get to the point that the assets come available, they have -- how do you get access to those assets? as long as they are secured to that debt, you actually need to default for that to occur. alix: so we need them to go bankrupt before cpa -- cpe and m&a can take place? jeff: they will do well in either case. if the situation recovers and
the value of these bonds improves, they are already along the bond. if the company defaults, they have the capability to take delivery of the assets. there are hedged in either way. talk toen you investors, what is the number one concern you feel they have right now when it comes to the energy sector? two groups. the specialists are more bearish right now. they believe disruptions in nigeria and canada will lead back to a surplus and problems later. if you talk to the macro folks, they are much more bullish. when you think about what is driving it, it is much more the macro community. so there are really two groups out there that are really divided. people felt we were in bearish enough on one side. and on the other, that we weren't bullish enough. these are really bullish events that have recently occurred,
that they also have bearish implications further on, which is why we take more of a balanced view on this. the: did that create volatility we saw on the first half of the year when you are looking for much more volatile prices? those bulls and bears being so strong and their positions? to thinkis ingesting, of what created the financial volatility in the early part of this year. the surplus was so large, it was overwhelming to store. you blow storage and create big spikes in the downside. supply was strong, pushing ahead. now we have real, fundamental volatility, but not nearly as much financial volatility. that is because you have disruptions taking supply out, surprises to the upside, taking supply out. much lower financial instability. stuff, thank you.
the canadian drugmaker is looking to raise cash and reduce debt. pandora media under pressure to explore sales. providerthe web radio is not making returns, even of a have a great product. shareholder has a 9.9% stake. espn says it has reached a deal with nielsen on a new way to monitor viewership. they incorporate measurements of people watching tv outside their homes in places like ours or health clubs. the technology is expected to become available next year. espn's ceo says it will be dramatic and could impact prices from advertisers. and that is the bloomberg business flash. big namesleant, exiting the shares. week show thatis they sold out of their valeant
holdings last quarter. in the meantime, andrew west, his report on valeant, saying he is back in. >> everything i said about valeant and it up being true, setting up certain entities to alter financial statements. as the stocks go down to the mid-to high 20's, i said they had a good trading strategy, maybe hedge myself. dark, i figured the stock might see higher before it sees lower. here with us now to discuss the 13 f filings and what is significant about the hedge fund , upunity is divya narendra from sumzero. we have hedge funds, mutual funds, private equity funds. you run a platform for people to
share their ideas. we see a few things. --erally, poor for performance among hedge stocks these days. and a lot of private trade. what does it say about the state of the industry that so many people got taken for a ride on this one, and clustering into the same set of stocks? divya: i don't think it says much. i think people read into it a lot more than they should. mind, moreo keep in than half of the hedge funds out there in the u.s. manage less than $100 million. a lot of the focus is on the huge, multimillion dollar funds. but there are actually thousands of hedge funds out there that don't necessarily pop up on the radar for conditions. one of the reasons why folks in the hedge fund industry value euros is because you're getting
a more timely review of what a specific analyst thinks on a given name. not just in terms of a price target, but in terms of a detailed defense of that price target and a logical reasoning. to say what is the rationale behind a particular name. there are a lot of smaller hedge funds out there, but the bigger ones attract the attention and have the potential to move markets and stocks. we talk about crowded trades here. to what extent are the hedge funds vulnerable to groupings, the same way that mutual fund managers are? you have to believe that as long as analysts are doing their homework, they should be coming to their own independent conclusions. this is something i watch out for, to the extent you see the same need -- names and every portfolio. an important thing to keep in mind, they don't tell you what is short in a portfolio, or if you need the--
context of that specific name and why it is important. there are all kinds of limitations of 13f's that are important to consider. joe: let's take a listen to this. quach hedge funds are all reactive, no independent thought. you bought it, i am going to bought it. there is no thought leadership because they are so fixated on daily and weekly returns. because of that, it is so out of everyone is focused on macro data points, we have forgotten how to pick good stocks, good management, good companies. the first half u of already sort of address, but short-term thinking within hedge funds, the managers have complained about that partners are trying to pull out after a couple quarters of underperformance. how big of an issue is that that
they cannot take out of a consensus position because they go for any period of time not matching the target, the money is lost. divya: it is a huge issue, obviously. there is often a mismatch between the duration of a particular investment and the redemption and returns of an lp. if you have a fund where your investor can pull the money out on a monthly basis, you are looking for a longer-term investment, you can obviously get caught in a situation. i think you see that a lot in terms of some of the returns. industry,injury -- performance-wise, you would expect a hedge funds to underperform enable market, and outperform in the other. i think the industry has shown it is been able to do that. controversy recently, but i think that mismatch
investmentt your horizon is, versus what your investors, what their alignment is, is a big issue. some hedge funds get that right and some get it wrong. scarlet: could you tell us about the ranking system, because what , you actually look for companies in special situations and there one time distributions. divya: it is not we at sumzero, but our community members. i think the reason why these guys do come to sumzero is because there is analysis and insight. we are not necessarily making it to bloomberg news or covered by wall street. the ranking is to show which analysts are consistently performing well, not just having one good idea on the platform, but a string of ideas that are consistent at performing well. , thank younarendra
scarlet: i'm scarlet fu, "what'd you miss?" investors are giving retailers a lot to worry about this season. tomorrow, it will be target's turned to see if they can hit there mark. problemaces the same facing all retailers, getting people into stores. no matter if it is high-end or not, they have seen a persistent the klein in foot traffic. -- shoppers are increasingly embracing the convenience of shopping from home. than 76% sincere the recession, that is the white line up there.
in contrast, a 17% in fiscal store receipts, the orange line bumping along the bottom. target's response has to focus on signature categories and their online businesses. store sales have found their footing, eventually returning to positive gains, as they emphasize areas like home, fashion, groceries, and baby products. last quarter, target increased online sales by 34%, driven by record-breaking results on black friday and cyber monday. those sales gains it did come at a price. steep discounts. this is the effect on gross margins. target needs to figure out how to turn revenue growth into profits. in the meantime, target avoids oversaturation. they currently have over 1800 stores, and choosing to keep those open. on their earnings
scarlet: i'm scarlet fu, "what'd you miss?" tonight.ort to gdp the consensus for growth, .1%. china property prices that 9:30 p.m.. joe: and i will look at eurozone cpi tomorrow. we will see how close europe is to its target. a lot further than the u.s.. scarlet: that is a target of 2%, as well. and don't forget, two percent targets will come out at 2:00 p.m.. and, then minutes from the april