tv Bloomberg Go Bloomberg August 22, 2016 7:00am-10:01am EDT
one healthy acquisition. pfizer will buy medivation for $14 billion, 20% premium. d stanley fischer says the central bank is close to meeting its targets. investors will look for more clues at jackson hole. oda says: governor kurdo there is a chance of easing at next month's policy meeting. we are live, of course, from new york city. the vice chair, giving us an appetizer. alix: it is so interesting how the markets interpret it. hikehawkish, he wants to sooner than later but he said none of those things. the u.s. growth is not going to be as bad we thought. he spent a lot of time talking about productivity. jonathan: he said the fed has
near its goals. my question, why is this time any different? alix: you have to see, are we aing to have a dudley and fisher that are very different. fisher is on the more hawkish side. what does that mean for yellen on friday? we have bank of americans global head of commodities. an interviewrx, you will only see on bloomberg. it was still a dollar move today. jonathan: an equity move off the back of that. you are looking at futures in the united states. down 1/4 of 1%. 2 of 1%. down 1/w speak.ad a week of saifed the guidance from stan fisher, the interpretation is a right on the rate hike stillo
table. a stronger dollar dominating. in the commodity market, stronger dollar, the commodity complex often. copper down. a big week of gains for crude last week. wti putting together its biggest weekly pop since march. supply coming back to the market. will talk about that later. in the bond market, the yield curve on treasuries and focus on the back of vice chair stanley fischer's comments over the weekend. 0.758%. notes up to one thing i can guarantee is the debate is going to continue. alix: friday is the day for. let's go around and check on our bloomberg team. $14 billion' acquisition. we have the latest on stanley
fischer's comments. and the latest changes in india central-bank. want to start with the m&a on monday. our senior analyst on biotech joins us. pfizer buying medivation. that is not a surprise. what was the catalyst that put this together? >> good morning. so, pfizer has been looking to get an oncology asset and medivation is a very attractive company. well performing drug in the market. cancer.tate we know that sanofi has been speaking to them about this. they put a bid in place. pfizer came in and used their war chest of cash to outbid sanofi. alix: $14 billion. it was the second largest since pfizer bought -- for $17 billion last year.
what does that do to the consolidation for the rest of the sector? >> this is a big story and biotech. biotech has been the novation engine. smaller companies getting bo ught out, that is usually what happens. this is accepted. we may see more of this coming along. aso not think it will dry up valuations have come down. alix: is there anything that you can point to that we can see ahead of the u.s. election with rates so low? >> exactly. there's uncertainty going in with the elections due to the drug pricing. more noise than anything else. everything is waiting for the valuations to come out. last your we had very high valuations in the biotech sector. -- since last year.
the space is looking more in the price to pay. in this case, there about five different bidders. alix: and sanofi out in the cold. thank you so much. we have to think, as we see some -- -- to move the jonathan: we are not going to make a strategic decision but it will influence the timing. update on thee federal reserve in goa khartoum to matthewel are -- and go bosler. chairr comment from vice stanley fischer. 2016 is still on the table. what was the message over the weekend? >> it is funny because the summertime fed speak has turned ckto the ultimate war shacroarsk
test. you can take a hawkish or dovish message. stand fisher gave us a bit of both. he is expects growth to pick up. then there are these longer-term issues of productivity that we are still dealing with. he was explicit about the need for not just monetary policy but stepped up fiscal and regulatory reforms to boost that. he might take the message that rates are going to stay low unless you call your commerce manning -- your congressman. jonathan: the federal reserve is trying to communicate to the market, to try to take away some inthe trough you might see other asset classes. the market has a message for the fed -- we don't believe what you're saying anymore. does the federal reserve have a problem with his communications with markets and the market's responses? >> if you look at the probable probabilities,
september is seen as not very likely for a rate hike. we have not gotten strong indications from fed officials that they want september to be on the table. a move by december seen as 50-50. that's probably as good as they could ask for, given how far away the december meeting still is. that keeps the markets honest. it still gives them the option to go if they so choose. jonathan: a busy week. our economic reporters at bloomberg counting down to janet yellen's speech coming this friday from jackson hole. focus isentral-bank in in india. it announces replacement for the governor. we are joined from mumbai. let's begin with the man. who is replacing him? the differences and similarities between the two. >> he takes over. this is the government clearly choosing -- the change. dr. patel's economic standpoint
is very well documented. he has been the key architect of inflation targeting. we know who he is. the markets know what is his position. he takes over in an environment that leads two significant changes. one, the inflation target. second is the monetary policy panel has been put in place to decide an interest rate. it is not going to be one man's call anymore. jonathan: that is a really important point, because covenant rajan introduced two things. investors looking at india right now, they have the continuity in the governor but it is not all about him. can you talk about the composition of the mpc and what that could look like? includell representatives on the bank of england and the government and the finance ministry. it would also include the governor of the bank of indian. -- bank of india.
nextnot yet clear if the monetary policy review will be done by the mpc or by the governor. also bear in mind that we also want to get our time, the macro economic environment in india has changed. three month high for prices. the expectations are extremely high. not to mention the pressure for cutting interest rates is always high. jonathan: the question remains whether those positions will be somewhat political, and that's something we will be looking at in the monsteths to come. on the markets globally, it is a stronger dollar story. futre markets in the united states. chinafor chmemc
getting u.s. regulatory approval to buy syngenta. they have to meet more hurdles, but none seem to be that dramatic as the u.s. this is a 43 billion dollar deal. we have seen a lot of potential deals in this industry. we are seeing buyers continuing trying to buy monsanto. talking about that stronger dollar, you have weaker commodity prices hurting some of the silver mining stocks. they tend to have as much as three times powers over the underlying commodity price. silver down 1%. could be some big movers on the downside. taking a look at valeant getting good news recently. the company naming paul hendron as the new cfo. the latest executive change under the ceo. some up grades
based on their debt may not be as bad. overall, this company moving. i will show you what i am highlighting, 30% in just 10 trading days. let's get an update on what is making headlines outside the business world. >> thank you. russia will quit using bases in iran for launch airstrikes for now according to the iranian foreign ministry. a defense minister criticized russia for saying it was using iranian bases. the leaders of germany, france and italy will meet at sea to discuss brexit and the threat of terrorism. will merkel, hollande and-- be aboard an italian aircraft carrier. trump's campaign may be
wavering on whether he will call 11 millionting immigrants. trump made it clear to new panel that his position is not final yet. his campaign manager says his stance on mass deportation is to be determined. global news 24 hours a day powered by 2600 journalists and analysts in 120 countries. this is bloomberg. stanley fischer giving some hawkish comments days ahead of jackson hole. says therenor kuroda is a chance of additional easing in september. it is central-bank diversions at its finest. morgan stanley's -- is here, selling down some risk. this is bloomberg. [♪
till janetdays yellen speech at jackson hole and stanley fischer sees growth picking up this year. the treasury two year to a two month high. joining us now is jim caron. you got dudley and fischer. more caucus. you guys still say that markets are overestimating a rate hike -- more hawkish. jim: the fed has a tightening posture. if every meeting was not live, than i think it would be a change of communication. i think it is due diligence to say every meeting is live and we'll take into consideration whatever is happening and we may hike or not. our view is it will be a slow pace. jonathan: you wake up this morning a see these comments over the weekend. the fed is nearing their goal,
big deal. they have done nothing. what makes these comments different? jim: nothing. that is my point. i think fischer is saying what he is supposed to be saying is that we have a tightening bias. every meeting is a live meeting. potentially there could be one rate hike, in december. we still need to see much more economic strength. we still need to see the actual inflation. we're not seeing that. if the fed is not hitting inflation goes, i do not know what golf he is talking about. dlix: there's a thir interpretation. you want to take the december risk off the table, move in september. jonathan: there is another interpretation, and that is that we want to introduce some two-way risk. the aggressive moves we saw -- do you think that is a concern, financial stability? jim: it is always a concern.
tightening of financial conditions is going to be important part we also have the jackson hole event. the way i look at this is horses for courses. alix: is that a thing? jim: the horse the central banks have been playing as a low rate horse. tighteningin a posture. but the reality is is i think that this movement towards lower rates by many global central banks today, i think they are seeing the end. now they have to switch horses. the fed has been talking about, williams has been saying opposite. we need to have higher inflation expectations. maybe we should target higher inflation instead of having 2%, make it 3%. look at nominal gdp targets. higher inflation expectations is going to be an important component. it does not mean the fed has to hike interest rates. they probably do hike but at a slow pace. isn't this year? maybe. jonathan: is that priced into
the market and your view is no. i want to understand why. jim: at this point, a lot of folks are starting to put into the market that, the fed may hike in september. i strongly disagree. where i think the market has gotten the most mispriced is at the back end at the 30 year point. long-term bond yields have come substantially on this premise that central banks will just keep pushing rates lower and lower. if the narrative changes to higher inflation expectations, the back end is vulnerable. we will looking at steeper yield curves as a potential risk. alix: when you have overseas investors looking at negative yields, they will buy our treasuries. how do you make the case? jim: they have to change their currency. alix: this is a hedging thing. jim: exactly right. what is happened is if you factor in the hedging costs. if you are a european and you
want to convert your euros to dollar, that advantage is not there today like it was in the past. alix: a new thing. this does not happen overnight. at what point does it stop the flow into treasuries or cause reversal? jim: what we need to see is the data. the data has to change. we are not seeing that. we are not seek the deliberate inflation expectations into markets. we are seeing grumblings but not actually seeing inflation right now. we need some actual economic growth. we need structural change, and we need to see some fiscal potential stimulus and we need to see the inflation. we're just not seeing it. i don't think it changes till that happens. jonathan: the big deabate you take the spread -- if you tak e my bloomberg right now and -- trades at 110 basis points. you're calling for 5.30. ard?hat a risk/rew
because we are already so flat. the risk reward is an important point because it has flattened substantially. we are at a point where central bank, williams, are talking about increasing inflation expectations, which make the long end of the curve the most vulnerable. the other is that people are heavily positioned in longer duration assets. a rise in yields on the back end hurts the most people. there's risk reward and some fundamental merit behind it based on what central banks are saying, in particular san francisco fed's williams has been talking about increasing inflation expectation. if that becomes the narrative, curves today are very overpriced. jonathan: great to have you with us. he will stick with us and we will dig more into his
bloomberg is . jim caron from morgan stanley is still with us. jim, we talked about that statement before the break but taking risk off seems to be one of your conviction trade. why? jim: we have had a really good run. aerything post-brexit, we got lot of things we did not expect. tighter spreads, higher equity prices. we have to take a step back and say, we are sitting right in front of a really big fed event
at jackson hole. we have another one coming up on september 21 without boj. ime where period of t we need to pull back and build some positions in cash and take some of the profits and keep some powder dry to re-into the market and what we think would be better levels. alix: you don't want duration risk, but it does sound like you want to go down the lower risk scale. jim: we still like carry trades. the areas we like them the most are areas of believe have lagged. sector such as commercial mortgage-backed securities. the defaulter going to be low. spreads have plenty of room. that is an area we are starting to build some positions in. financial and investment grade credit. good for the bondholder, not so much for the equity but the bondholder, which is what i do. so, those are sectors that work.
areas we believe our last interest rate sensitive. want to step i away from. other areas. for example, if we look at high yield, some areas within high yield are the boring sector. packaging, health care, paper, energy. we can still get 6%, 8% yields in sectors that are more stable. jonathan: just to summarize some of the risk. matt king wrote this. one of them said that standard & poor's global rating have notched up. the biggest default since 2009. we're equal to 2015 in total and it is august. how much of a concern is that? jim: it is a concern as to what sector that is coming in. a lot of the defaults or a lot of the rise and fall rates are coming more in the energy
sector. that is something that has been expected. you are right in saying that. that is one of the reasons why i did not mention the energy sector. for us, we like to think of bond funds as being bond funds. speculative. we want to find sectors that are a little bit less risk- sensitive. we are not going to play to high default risks. 8%, yields, what is wrong with that? jonathan: you've got to find it first. jim caron, great to have you with us. alix: coming up, inside the global hunt for a better way to measure the economy. gdp threatening to send policy and investors in the wrong direction. this is bloomberg. ♪
minutes, a real rollover. we were positive across the board and now we are negative across the board. the ftse down by half of 1% and the dax up. softer equities this session developing. markets, this one story -- the stronger dollar story. the stronger pound in there as well. the pound, the only currency in the g 10 trading stronger against the dollar. dollar-yen up. 156. yields on change. two year notes in focus, up a basis point. crude started to read force. -- reverse. i have got to say the federal reserve very much in focus. it seems we have heard from mr. alix, i've got a say it feels like an attorney since we heard from the lady. you miss her? alix: i do. remember the hierarchy come you dudley.len, fischer and
here is what else you need to know at this hour. pfizer has agreed to buy medivation for $14 billion, more than 20% premium for friday's closing. an executive editor of global deals for bloomberg news. what was the real trigger to send this deal over the edge? >> it was basically the fact that pfizer, since their deal fell apart in april with allergan, they have been trying to do what you would call late stage drugs or assets in market already are could be in the market sooner. the reality is poor sanofi got out gunned by pfizer, which is twice their size. an all cash deal. if you look back at march, it is funny. in march the offer was $52.50. medivation was traded between $5
billion and $6 billion. now they are selling for $14 billion. it's incredible. the view investor i march has to be pretty happy. alix: sanofi not feeling the burn of this deal. >> not immediately, but long-term they were hoping for a bigger play to oncology and cancer drugs. medivation does prostate cancer drugs. and they're developing drugs in breast and blood cancer that could be a huge platform for oncology drugs. that hurt sanofi long-term. alix: what does sanofi have to buy? >> i do not know that there is anything obvious. alix: smaller? >> smaller deals. something of this size, there are not a lot of these kinds of deals when you are of sanofi's sidze. most of the deals that should been done have been done. pfizer, back when they had money and status, valleant was
spending a lot of money. now most of those opportunities are gone. if you are sanofi, ok, what else can we go after? what is there in europe or asia are in the united states? alix: of course, it is not just pfizer and medivation, it has been really hot for m&a. are there any regulatory hurdles to worry about? >> not thwith this one. the big issue is health insurance. the four big companies trying to come together. and regulators have been stricter the last 18 months. they have been cracking down on deals. but this deal does not seem like there will be any issues. alix: does not disappoint. the executive director of global deals. a second we'll get reading a u.s. second-quarter gdp wednesday. as revisions and changes in technology undermine confidence. in the relevance and accuracy of the data points. a chief economist wrote in a
note "the single focus on gdp in many policy discussions is misleading. distribution effects are future rather on than current output may be as important for welfare as effects on current gdp." our economic supporter joins us for more on her bloomberg story. let's begin with the issue with gdp currently. why is he getting so much traction in the here and now? measure that was developed after the great depression and it is a measure we are using after the great recession. when we have a lot of technological disruption, a lot of innovation. we have policymakers around the world looking for growth. and they are looking more and more at gdp to tell them what t he economy is doing, but it is not telling the whole story. jonathan: this is been a
problem for a while. what do you, instead, as a policy maker, what are the options outside of gdp? you want to tell policymakers, look at the bigger picture. we also see what is going on with in equality and other sides of the economy, technology and what more consumer driven societies are doing rather than more manufacturing-based as it was 100 years ago. but finding alternatives is not easy. it is easier said than done. there is not an obvious replacement. there are those who say, let's measure happiness to see how an economy is doing. but it is hard to say what we should do. jonathan: if they measured happiness, they would be easing all the time if they looked at my face. maybe -100 basis points. looking at central banks, they have to deal with these figures and the revisions and how important they are. you can have a year where the yout readsinings tell recession.
are policymakers worried about oftakes coming about a lack accuracy reading the economy? >> they must be. more investors are looking at what gdp can and cannot tell us. if you take japan in 2014, the economy showed a contraction, but another look at those specifics of years later on, and we see there was robust growth that your. -- that year. it changes what measures you take to spur growth. jonathan: gdp. comes in on friday. thank you for joining us. alix: a shakeup in india's central bank. patel will take the helm at the reserve bank in india in the middle of policymaking overall. he could have to contend with $20 billion of
outflows. what does that mean? luis costa joins us now from london. the rhetoric was over the weekend that patel is an inflation hawk. don't expect aggressive easing. is that the right interpretation? >> that is the right way to read this transition. we don't see a huge change of monetary policy strategy from rajnan to mr. patel. it is a case of continuation of the policy. of focus do with a lot is still on the cpi targets, inflation targets. using the headlines as the main barometer for the effects of this strategy. so, honestly, i really do not think there's a huge disruption here. of course, from the growth background, we know that india
over the past quarter or so has given a few signs of deceleration. anstill believe -- they are outperform are compared to many other e.m. countries, especially the big e.m. countries. but we cannot discuss the possibility of cuts in the future, but only if the cpi headline oalaoolows the rbi to do so. they will remain strict and robust on their targets, on the cpi targets going forward. jonathan: want to come back a couple of steps. before we dig into monetary policy and inflation target. let's go back to the beginning of this conversation. when we found out the governor was not going for a second term, the first thing we discussed was the politicization of the brbi. we might get a continuation of
his policies but the issue now is that the governor patel does not have the power the governor rajan had. are you concern that the composition of that mpc becomes politicized? >> i think there would be a bigger component, of course. it's very difficult to go back in rajan.sona it's very difficult. as you mentioned, it is going to be a much more dilluted power within the mpc, but they also understand that india may huge headways from the 2013 crisis. you probably remember the dynamics and how the rupiah now.d back then to it has to do with structural reforms. it has to do with a much more draconian way of pursuing monetary policy, and inflation
targets. i really do not think they are going to give that away. as a matter of fact, for -- there's a statement from mr. patel. i get the sense there will be a path of continuity rather than any destruction between the previous and the current rbi governors. alix: the prime minister still has an opportunity to name three other individuals to the monetary policy board. a could bring more of populist voice to the board because patel does not have a vote, just a veto. how do you think that dynamic shakes out? >> there will be some degree of politicization here. it is not at all usual in terms of dynamics. i do think that if the rbi going choose17, if they another cut for another cut, further dovish measures, they
will be backed by -- in dozens, as i mentioned before, it is not like the indian economy is going from strength to strength. are potentialere headwinds in terms of growth, which we know is supported the imposition of a few fiscal stimulus now. in general, i do think there will be calls for cuts, given the stance in the e.m.'s in general. india will not be totally unsc athed forrom this. alix: thank you very much. nonetheless, it is a fascinating conversation. we look more towards the populace figures or -- we can keep inflation in check and will be able to grow at the same time. jonathan: a weather dependent central-bank. so much depends on the monsoon
rains. you have a good amount of rain, you have a decent roots o-- food supply. another conversation is in the crude market. crude is down aggressively. coming up, it is the -- after a week of gains, a supply boost for ira q and nigeria. opec set to discussing output freeze . next month. this is bloomberg. ♪
>> here is your bloomberg business flash. pfizer has agreed to buy medivation for $14 billion in cash. pfizer will acquire prostate cancer drug that is approved for sale in the u.s. the deal is a blow to sanofi which spent five months pressuring medivation. supplierement with the has led volkswagen to extend its production shutdown to factor in ies make the golf car. that has halted deliveries while the two companies battle in court. negotiations resumed today. the largest real estate broker in the u.k. predicts that london's housing boom will come to an end next year. countrywide says that housing prices will drop 1% in 2017. that would be the first decrease in 2009. countrywide says that vote to
leave the european union has unsettled the british economy. this is bloomberg. alix: thank you. oil falling this morning after entering a bull market friday. now we get news. iraq increasing exports, rigs in added.. being the hope is that opec could come to a deal to freeze up at. -- fereeze output. >> we are going to a possible revision of the imbalance. an equilibrium between the supply and demand by the end of the year. it is clear, there is still a euge spike in terms of crud that we have to evacuate in the next month. wisee they can find a decision to have a stabilization
in production without increasing -- in the previous month. alix: an oil equities analyst, it seemed like please, opec, ple ase cut. you see that ever happening in september? >> i actually think it is unlikely we will see any type of ceiling coming from the september meeting. meeting.nformal there is a fair amid of acrimony between the iranians and the saudis. by 4q, you do not need a production cut to alix: if they do not need a production cut, why is the market continued to stabilize around $50? what does that mean for the cap x prospects for energy companies? double digits this year and last. what happens in the next six? >> $50 is a level that the big companies are good with balancing their cash cycle and being able to pay dividends. the big pick up in capital
spending. it is more stabilization. e can see some rigs put in the united states. talked about and i it before, any case studies for what some of the other majors could of done. let's get rid of the dividend and keep the reserve replacement ratio high. of a reservee replacement ratio that is pretty decent compared to the other fully integrated oi majorsl? x, whathe cuts in cap is the lag time between that and supply shortages versus glut? >> there has only been six major capital projects that are targeting oil that have been sentenced since 2014. by 2018, we do get into a point where any supply could lead to spiking prices. there is simply, once opec gets to full capacity, nothing left to tap. alix: to john's point, a lot of
companies are choosing the oil rally to repair their balance sheet, paydown debt. does that exacerbate a potential under supply and bring forward the price spike rally? >> i think that is exactly right. that is happening under a lot of pressure. so, it is necessary action. you would see some balance between balance sheet repair and moving forward with significant major capital projects. those still have to take place. there is not a lot of excess cash available right now. jonathan: this is why we love talking to you because we can talk about the crude market and talk about the equities and the managers that have to function in this market. who has got the right balance right now between rewarding investors, maintaining capx? >> chevron is best in class.
the dividend yield is 4%. it has the best production growth outlook within the sector. they just recently endorsed or sentient a project that will give us visibility on post 2020 production. oil: made some big companies look so juicy, because their costs have fallen so much. i'mservices guys are like, going to raise my prices. who wins that war? >> that is a very good question. i do think there is not much room fo further margin contraction. they will see some upward pressure on the prices that they charge their customers. it is going to be a moderated approach that will take place. i think this service company's simply need more margin if they are going to be available to the integrated oil companies. alix: good to see you, jason
gimmel. if you lose a little bit of that margin where are you picking from? jonathan: you keep cutting costs. big conversation for bloomberg . how negative interest rates are turning to bond markets upside down. traders piling into japanese debt. we will explain why next. from new york, this is bloomberg. ♪
alix: this is bloomberg . treasuryion for the market -- if you are european or just being investor and you buy a 10-year, your not making a lot of money. you are losing money or how about a way to profit off of negative yielding debt? pimco and china arguing just that. 3is is the dollar hedged month yield, the white
line. the actual yield on the japanese t-bill is negative. t-billdged japanese yield is at its highest level since 2011. you can make a lot of money off of that. this other chart shows you why. you pay this three month yen libor rate. -.01%. libor rate is and the dollar is positive. that is a juicy spread. profit making a juicy margin. that is what making -- i making this hedging profit strategys profitable. who's buying? pimco is buying but also china. chinese flows into japanese bills, 10 trillion yen. an all-time high, they hit back
in june. $3.2 trillion and currency reserves and 60% is in dollar. there is tons of demand for those dollars and they can make money off of that. according,lso people familiar to the situation, said there was liquidation of treasuries and buying of japanese debt after the fed hiked in december. allocation to japan. and a world, where we say, why would you want to own negative yielding debt, you can actually do it. jonathan: return is another. if you get into the longer -- you could've made over 30% at one point. you see it on gilts as well. it is less about the yield and about the absolute return.
pfizer will buy a company for $14 billion, a 21% premium to friday's closing price. jonathan: stanley fischer says the central bank is close to meeting its target. investors look for more clues at jackson hole this week. alix: easy does it. there's a sufficient chance for using at next month policy meeting. a very happy monday to you all. welcome to the second hour of "bloomberg ." i'm alix steel with jonathan ferro. david westin is off somewhere and i wen in ireland. jonathan: he's not missing anything as we are playing third straight will they, won't they day from the fed. to pute says, they want the timber on the table because you do not want the duration risk of hiking in september. jonathan: they want to do it now
and what's currently being priced is no chance, no way at all. the question i would be asking is what else do they expect? why they surprise that this market is not pricing and action when this market is conditioned through experience to know they're not going to follow it up with anything? alix: a 22% chance of a hike in september. we have a big hour ahead for us. bank of america's global head of commodities and derivatives research francisco blanche will be joining us. plus, oaktree capital group cochairman howard marks will be with us in a bloomberg exclusive. it is still the dollar front and center at these moves. jonathan: that is what we have seen throughout the asset classes. they are down a third of 1% on the s&p 500. down a third on the dow. a little bit softer in europe as well, but the dax is down 7/10 of 1%.
if i can get the bloomberg dollar index of for you and show you the breakdown of some of the crosses, the cable rate is the exception to today's role. that is where you see the dollar strength up a third of 1%. that is the interpretation today. yields unchanged and the front end very much in focus. when you reconcile a stronger dollar with commodities, you want to see a softer session. wti down by 2.6%. it is the supply story, but is the dollar strength story to think about as well in this market. alix: we will put that question to francisco and half an hour. let's go around the world to check in with a bloomberg t team. matt bowler is checking on the latest with stanley fischer's comment and looking ahead at janet yellen's speech. and the latest changes that
india central-bank. monday,tart with m&a joining us to discuss pfizer's purchase of medivation. in terms of the price, is this above expectation? >> i would say so. we're looking at some of the multiples out there and some of the similar deals and you get a multiple of 10.89. you look at what analysts are expecting for 2017 for medivation, the pfizer bid comes 5% or 6% above the price that you would assume. it is a good deal and it is a reminder of all caps. -- of all cash. alix: pushing hard for medivation and the stock is likely down t today. can we expect them to top this bit? ashtika: i'm not going to stick my neck out there and say they're going to do it.
them.eally lowball they are at risk of becoming an oncology has been. i'm not sure that they are coming out guns blazing that pfizer did. alix: thanks for joining us, senior analyst on biotech. the other uncertainty as well as the federal reserve . we want to bring in our economics reporter from new york with comments from vice chair stanley fischer. matt, what is the take away from this, because often you never read the speech but take the headline and then extrapolate from that what it means for rates coul what doe. what does it mean for here? matt: it is like who knows, who cares at this point. the odds of the rate hike is that 50-50 for the end of the year, which is where they want
because that allow stand fischer to come out and send an upbeat message on the economy. it harkens to these longer-term issues and leaves us in a holding pattern and gives them a lot of flexibility for the next few meetings what they do with interest rates later this year. jonathan: the markets are not going to wait for the next meeting. we are waiting for fed chair janet yellen this friday. we have heard from two of the holy trinity so to speak. where does yellen fall in between those two? matt: she is probably going to be close to those two and it would be unusual if she came out with a substantially different message. what you have heard from both fisher and dudley is that things expectking up and we possibly a rate increase coming fairly soon, but you do not necessarily need to engage in some sort of big repressing at this point where you have expectations. setup for janet yellen because she does not have to go into jackson hole this weekend and send a strong signal
as she can send an upbeat message on the economy as well and remind people that rate hikes are coming at some point, maybe sooner rather than later, but not necessarily. jonathan: the fed the big topic ahead of this week's jackson hole speech from fed chair janet yellen. down.b.i. governor steps -- who replaces him? let's crossover to mumbai. steady as she goes, a continuation of the story? >> the deputy governor has been promoted to the head of the bank of india. he comes with the reputation of being a bit of an inflation hawk. he was a author of the targeting regime that is now place in india. inflation has been a three-month high and we are dealing with oil
prices largely inching up. interest rates are not the call the government anymore but a monetary policy battle. jonathan: thank you. that competition will be very much the big story for the r.b.i. in the coming months . i want to cross over to erik schatzker who is with howard marks for a bloomberg exclusive .oul erik: good morning, howard. last time we talked, i tried my damnedest to talk to you about politics and you murdered and now you write a whole memo about politics. how may times have you touched on politics? howard: i think this is the second. erik: why now? howard: my family and i concluded that this is the time to speak up.
the stakes are too high for me to remain that ivory tower professor. extremely important to speak up as to who will be our next president. erik: why? wire the stakes so high? why is it important for you to say something? howard: as president obama said in a recent speech, i would go further. all the people who ran for president during my lifetime, i believe, were basically competent. while i had a preference, it would not have killed me to have the other guy c. this time, i do not think that both candidates are equally competent and up to the job. i think it is very important that we make the right choice. erik: it sounds as though you have effectively cast your vote before november. howard: i like to think i am subject to change, but it's unlikely. erik: i do not want to put words in your mouth, so why don't you tell us who it is you think would be the more competent president? howard: i think hillary clinton.
i disclose that i'm a lifelong democrat, but i think hillary clinton has the experience and has the wisdom and has the president and to make the country run right. erik: she has faults. howard: she has several pronounced faults. erik: which one concerns the most? hasrd: i think that she skirted the rules from time to time. i think that she has done things that are not to the standard i would like to see. erik: despite that concern, that flock, that fault if you will, she to you is a more preferable alternative the donald trump? howard: mike bloomberg at the democratic national convention said, let us elect the president who is same and competent and
has international experience. i think that she qualifies on all three. erik: howard, i will take this opportunity to remind everybody that mike bloomberg is the majority shareholder of bloomberg lp. howard: i will use this opportunity to remind everybody that the views that i speak are my own and not those of oaktree capital management or my partners. erik: what is it that concerns you about trump? howard: let us say, first of all, that he has a tangible qualification, a credential to be president. what is it? most people would say it's his business success. erik: he would say that. howard: his supporters would say that. he is this brilliant businessman and that proves that he can run the country. who not think that anybody is serious in the business world thinks that he is a great businessman. i do not think that anybody who is serious and the new york real
estate community thinks he's a pillar of that community. been in 3500 lawsuits. he has been subject of a class action fraud complaint at the time he is running for the presidency. string ofunmatched bankruptcies, which he is proud of. he says that shows how strategic he is. believe me -- nobody ever succeeded by going bankrupt. bankruptcy is just the way to make failure less painful. erik: we are having this conversation, howard, because you have among the best long-term track records of investing of anybody who is still in the business today. help me understand this then. the hallmark of consistently successful investing would seem to me to be consistently rational decision-making. there are a number of other consistently successful
investors who have made the choice to support donald trump. i'm specifically thinking about ckrl icahn, tom barra steve fiv fienberg of servers. can you understand why donald trump has been able to attract those investors, who by virtue of their investing acumen, have been rational investors? howard: i was cleaning my desk theerday and i came across great quote. "for he who believes, no proof is necessary. for he who doubts, no proof as possible." maybe they are dyed in the wool republicans. maybe they are friends of his. maybe they think that a businessman would be a great advantage. maybe they think he would lower their taxes . hillary's think that
shortcomings, which we touched on, are more debilitating than i am. you put these on the scale and different people skills work differently. -- scales work differently. i just know where i come out. what does donald donalerik: trump record as a borrower, because his fortune has been built on debt, tell an investor like you about the way he would run the country's p&l and the balance sheet? howard: i do not have to guess that because you said one of the great ways we can improve the country's finances would be we are telling people we will not repay our debt and full. erik: he floated that idea. howard: it's a scary idea. presidents in my opinion cannot just float any idea they want. we enjoyed a low cost of borrowing and an infinite availability of borrowed funds
because nobody doubts that we are going to pay our money back. erik: howard, we need to take a quick break. we will continue the conversation. howard marks, cofounder and cochairman of oaktree capital, speaking out about politics and donald trump. you want to hear him about investing? you will after the break. this is bloomberg. ♪
erik: you are watching "bloomberg ." i'm erik schatzker with howard marks, the cofounder and cochairman of oaktree capital, one of the world's most successful investors in the credit markets. howard, we just finished a good conversation, i would say, about politics. every time you sit here, people want to know what your thoughts are on financial markets and investing psychology. to get them there, i want to go
back to a memo you wrote to your clients in 2002. here's a direct quote. consist ofesting dealing with the future and the future is something we cannot know much about, but the limits of our core knowledge may not lead us to failure as long as we acknowledge them and act accordingly. that cycle and what it implies for the future is very different than predicting the timing, extent, and shape of the next cyclical move." so where are we in the cycle? howard: the important thing that in the credit cycle, we are in the elevated portion. elevated in the credit cycle means that the availability of funds is high, skepticism is low, due diligence is low, investor demands are low, risk premiums are low, and it is a time to emphasize caution over
aggressiveness. first of all, no one is being incentivized to exercise caution. there being incentivized to throw caution to the wind and if they do because not buy safer assets, they do not make money. that is problem number one. if wem number two is that look at history, and i think we have a chart that helps illustrate this, high-yield spreads are not anywhere near the record lows, but they certainly aren't close to record lows. howard: they are not. erik: this is the 10-year note. perhaps we can get back to high-yield spreads. let's touch on that point. howard: the yield spread is the compensation you receive for taking incremental risk from going from a high grade bond to a high-yield bond, which is better known as a speculative grade bond. erik: or junk-bond. -- i waso the spread
lucky enough to be asked 30 years ago this month to start the high yield bond fund. the normal yield spread has been between 350 at 550 basis points of incremental yield to take the credit risk. erik: we are now around 500. howard: we are in the upper portion of the historic range. if you bought high-yield bonds in the upper portion of the spread range, you did quite well relative to treasuries over a reasonable holding period. the problem is not with the relative return. one of my sayings is that you cannot eat relative returns. the problem is with the absolute return and the central banks have brought all interest rates so low that even if we have a nice spread on high-yield, it is still at a low absolute. erik: this is the nice high yield spread chart, which shows
the point you have been illustrated. again, let's remind everybody that with interest rates here almost at zero, interest rates in europe and japan negative, izedstors are being incentive to chase yields. how do you prepare for calamity? howard: we are in a low return world. those are the three most important words to remember. how do you go about doing your business in a low return world? you can settle for a low return with characteristic safety or you can pursue a high return. how do you get a high return and a low return world? tthe answer is you have to take significant risk. erik: are you comfortable taking that risk? howard: i'm a professional. do not try this at home. i've been doing this for 38 years and we know how to do it. we have done in the last five years and we have operated under the mantra of move forward but with caution. caution with oaktree as a
cautious investor needs more caution than usual. we have amped up are caution and selectivity and skepticism and all the things that i said earlier were in short supply. we have embraced. erik: oaktree is willing to sacrifice potential return in order to buy that margin. howard: we have a safer than o, whichportfoli means that if everything goes normally, we will make a lower return than the average, but that is the price you pay for having a safer than average portfolio, which we think is important at this time. when we say we cannot predict but we can prepare, one way you can prepare for the future today is by increasing the representation of caution in your portfolio. erik: if you look at the credit market right now, is there anything that is either attractive on an absolute basis or a relative basis? howard: high-yield is attractive
on a relative basis. if you buy high-yield bonds today, i'm highly confident that you will outperform treasuries in high-grade. that is attractive in relative terms. there's nothing which is absolutely cheap. there are no bargains in absolute terms. there is nothing being given away for less than its intrinsic value. when the central bank brings down what we call the risk free rate, the base rate, that is like pending the tail on the donkey. all the returns proceed rationally from that base, but at a low level. , going back tomo history, which was the first cautionary memo of the last cycle. i said then we were in a low return world. i described in there the steps one would take once one recognized that. erik: what howard marks ever by
a negative yielding instrument? -- would howard marks ever by a negative yielding instrument? howard: they would it be easy to say no, but what are the alternatives? another memo i wrote is called "it is what it is." we said the investment environment is a given. we cannot say no, i want a different environment. we cannot say we are in a low return world and i want to invest for a high return safely. this is reality. this is investment reality. so if the environment were extremely risky and the returns wereaking risk o paltry, i think it would be better to have a negative return and lose a little money every day on a sure basis then to take high risks to try to do better. erik: however, everyone is trying to figure up for himself what it ishow long
going to take to demonstrate that this cautious, prudent approach that you advise is well considered. i know that when you look at individual rate hikes or the prospect of individual rate hikes, you say, who cares? play five basis points doesn't matter. how many rate hikes would it take, do you think, to dampen demand for high-yield? at what point would in testers -- investors be invest th incentivized to chase high-yield? howard: jim morrison had a sign that said it looks down so long that it looks up to me. people who have their ardor for high-yield reduced, they would have to get to the point where they would get a good return without resorting to high-yield bonds. erik: what would that be? howard: let's go back to 2007 1
treasuries yielded 6.5 for the five-year. if iinly everybody says could get 6.5 on a treasury that i would never own a high-yield bond. we will see if that is true e. the point is that if the five-year treasury or 10 year treasury yielded three, would they care less about high-yield? erik: and you think? howard: borderline. if they yielded five, i'm going to pull in my wrist. erik: one thing i can say is that we aren't awfully long way away. howard, great seeing you as always. howard marks is the cochairman and cofounder of oaktree capital. alix steel, back to you. alix: great interview and great insight. the idea that safer than average right now also i code what we heard from the cio of aig last week. you're going to give up some
return, but longer-term has too much risk out there. jonathan: we will come up back to the market when the frost comes up maybe. alix: it is good to hear this perspective of what does the yield have to be to change the dynamic. howard marks is putting a little more like 3% maybe. jonathan: 2% is where we start of the year. alix: it is a rally for oil shifting from a veritable market. francisco blanche on more long-term gains. this is bloomberg. ♪
cancer drug. medivation can go out and look for other bids. this is 35% higher than the previous bid for medivation back in july. they really wanted medivation, responding that it remains a disciplined acquirer and appreciates the opportunity to engage with medivation. also taking a look at syngenta today. can china finally get u.s. security approval to buy syngenta? this is a big deal. the u.s. regulatory hurdle was the biggest one they had. security clearance fears were the biggest reason for the 20% discount on that bed. a big sigh of relief for this merger. also taking a look at cst brands, a spinoff. it basically runs gas stations in the southeastern united states and canada. it is getting a bid by a canadian company. that company making a bid for 48
dollars $.50 a share. this is the fourth deal so far this year, and thing of its retail gas stations. it is interesting up on this m&a. we have well they and one day with the fed. back to: it is getting business and the markets are shrugging off the noise coming out of the fed as well. you see futures a little bit negative. . equity markets in germany down six tens of 1% and the ftse is lower by 4/10. fed vicents came from chairman stanley fischer and he said the fed is nearing its goals. the market thought the fed was nearing hiking again. the bloomberg dollar index is showing dollar strength but only marginally, up 2/10 of 1%. the moves are not really that dramatic either. dollar yen is a couple tends of 1%.
we saw two-year note yield a little bit higher. now we will raise that move as well. on the long end of the treasury curve, yield coming in almost three basis points at 2.612%. to seeou are continuing that story is the dollar strength feeding to the commodity complex with copper down. i would say that the move in crude is less about the dollar and a lot more about supply stories in the market as well this week, given that we just had the biggest week of gains on wti since march of this year. commodities will be a discussion for us in just a couple minutes time. for us, let's get you up to speed on the headlines after the business world. emma: donald trump's campaign may be wavering on whether he will call for 11 million immigrants in the u.s. to be deported completely. he says his decision is not final yet.
campaign manager says the mass deportation is to be determined. russia will quit using bases in iran for strikes on rebels, at least for now. that is according to iran's foreign ministry. earlier today, iran's defense minister criticized russia for saying it would use iranian basis, calling it show off and ungentlemanly. the summer olympics in rio and this is japan's prime minister trace dressed as super mario. he was there as a preview of the 2020 olympics, which will be held in tokyo. the u.s. one the most golds, followed by great britain and china. the total medal count has the u.s. winning 121 metals, 46 of them gold. china was in second with 70 in great britain and third. global news 24 hours a day powered by journalist and analyst in more than 120 countries, this is bloomberg
. jonathan: let's get more on pfizer's $14 million agreement to buy medivation. let's bring in jeff mccracken right here at bloomberg news. let us start at the top. what is pfizer exley getting with the $40 billion in spending? jeff: the cap he was worth $6 billion and at any rate it is mostly oncology. it is a prostate drug out on the market and there are two other drugs they're working on. one is a breast-cancer drug and the other is a blood cancer drug. that is what their time to do -- build up their oncology platform if you will. the bigger question now is are they going to split up? for a long time it was assumed that there would be two pfizers -- one would be the new drug and the other would be the established drug pfizer. it is not clear if that is still going to happen. a lot is going on with pfizer right now and this deal is
probably going to compensate matters in terms of splitting. jonathan: the 20% premium that we are talking about before everyone started going after it . jeff: the first offer we were aware of was around $52.50 a share. they got up to $58 a share and then there was a cd-r, which was three dollars on top of the $58. we open up today and pfizer has share, almost50 a $14 billion in cash. it would be nice if you were an investor back in march with this company . jonathan: what about the sanity investor? the ceo when after medivation and an aggressive way. where does it leave them now? jeff: not in a great place, because it's not a a lot of targets of this size with these oncology drugs. fi, you step back
and say are there other biotech firms that we can go after, but this is a huge disappointment. there were others like merck i by were around, but sanof far was the most public and spent five or six months in a public way trying to woo medivation. jonathan: medivation seems to be the winner with a huge termination fee put on that. clearly the risk on the other side is low. for syngenta, let's talk about the execution risk. can china get over one of the hurdles? how closer should we be to a deal? jeff: closer to the end of the year we should have a deal. this all started in september or october of last year and we were lucky to break the fact that they were running for syngenta. this was the hurdle. this was the hardest thing to overcome. it looks like they're going to get the committee on foreign investment to sign off on it. jonathan: jeff mccracken, m&a monday.
he is the executive editor for global news at liver. alix: a 2% selloff and iraq will boost oil shipment for the next few days as the u.s. continues to add rigs. was that rally a fake out? us hereo blanche joins on set. great to see you. francisco: thanks for having me . alix: we have an 85% rally in the latest run at 20%. are we in for another 40% selloff? francisco: i don't think so. that's the short answer. [laughter] third quarter is always going to be soft because refineries are going to maintenance and there is less demand. we're going into a fourth quarter with a pretty sizable deficit in the global oil
markets. it's possibly as large as half a million to 700,000 barrels a day. that will make it hard for prices to come down in the fourth quarter. remember that that is under normal weather. if we get a normal winter, that will put a significant amount of pressure on the prices. perhaps the one thing that could bring us back down is a recession and extremely warm winter. maybe we get the saudi's to pump oil into the market. i do not think that is particularly likely, but those are potentially to risks on demand on the supply side. we see prices ending at $55 a barrel by year end. last dip was not too brief could . i was surprised how quickly it rebounded.
i did not expect it to run that fast. i still think the market is tightening. you see it in brent spreads across the board. i think demand is very, very strong. alix: talking about spreads, this is one that you highlighted in your recent note. i liable labeled it the most important spread. and toquals light oil buy equals heavy oil. that spread is going to keep widening. talk us through the logistics of that. francisco: that is more of a technical nuance. seeing lightally supplies because that is basically the oil that comes from the u.s.. we have had a major downturn . we are getting more saudi and iraqi barrels. all this is going to result in a
wider spread. as demand picks up and as we clean up the gasoline inventory that we have, i think the next sweets going to be light grades. jonathan: coming to an oil conversation over the last month, you can pick and analyst and say why is crude in a bull market? you'd say it's just a pet. -- opec. what i've gotten from you is that you do not think that is the story. why? francisco: opec can talk, but i wrote about this a couple years ago following the opec meeting on thanksgiving day of 2014 where they basically dissembled the cartel in my opinion. opec is very dysfunctional. you can have commentary on the market moving here and there, but in the last six months, we have moved from a massive surplus of a million and a half barrels a day to a balanced market.
now we are moving to deficit. it is not a one quarter deficit. it is a five-seven quarter deficit. as soon as we move inventory, the pressure is going to build. alix: it is not opec focused. it is u.s. focused as you mentioned. on the flipside, you have eight weeks now of u.s. production starting to pick up. what gives you the conviction that we are going to be able to cap that? francisco: i do not think we need to cap that. our forecasts are that u.s. production will have to increase sequentially from january onwards to fill the gap. next year we have a deficit on average of 800,000 barrels a day. embeds a sequential improvement introduction. the u.s. is coming down to a .4 million barrels a day. at the end of the year, it has to improve sequentially. that basically means that from
january onwards, production will have to go up and that is why rates are going up right now. jonathan: when we sat down on friday waiting for that big data point to come out and it says 9-12 straight weeks of gains, that is not bearish to you. francisco: that is exactly what needs to happen otherwise the market will be too high. and to see the u.s. supplies coming back. we are running in a market that does not have a lot of spare capacity here. saudi arabia has maybe a million and change barrels at this point, but that's about it. we do not have the ability to accommodate that supply production. alix: if oil services have their way, they will start raising the cost because they have to. that will filter through big oil. does that rebate the cost curve higher for companies to operate? francisco: it will raise it up a bit. there also relatively gains
coming through and that is one of the arguments as to how the market settles medium-term. are we going to settle at 70 a barrel? what is not open for debate is whether we can actually settle below $50 a barrel because below $50 a barrel, almost nothing makes money except for saudi oil and iranian oil. that is the real story. i think we need to be higher than $50 on a medium-term basis. it is a question of how much market share of the saudi's want to gain. that will determine the cap to the price. i do not think the u.s. alone with prices at $50 a barrel can change direction on the market . alix: francisco blanch stays with us. really interesting conversation. the saudi's cannot change the market pricing now, but later. jonathan: i'm learning something and i will learn something in a moment. the rally in gold is slowing.
the federal reserve debate continues as the will they, won't they rate hike debate has been playing for nine months since the last time they hike. let us bring back francisco blanch. francisco, before the break, we had a tease and it was a 12% move on gold upside or downside. let us start their. francisco: we think there is upside. with the fed getting a little more hawkish, you have to take a more cautious tone on gold in the short run until we have more clarity as to what it's going to do. clearly the reason why gold prices are moving higher has to deal with negative interest rates and negative yielding bonds. that is really what kicked off the gold market to a tremendous rally. you have seen it and europe and japan and around the world. we keep on seeing more bonds pushed in negative territory from a yield perspective. if that is the case, gold will get a strong bid.
otherwise we will get a bit of a selloff. alix: we did see u.s. yields start to turn positive angle cap rallying. -- and gold kept rallying. what does that tell you about buyers and the emerging markets? francisco: there's a story on nominal yield. gold sometimes strikes real and sometimes strikes nominal. really nominal has been the protective negative yielding bonds have been a huge drag on gold. it is more extensive today to carry euros at the front end. your investment at the very front is more expensive than carrying gold. gold supply is only going to increase at a 1.5% increase at cost while the supply of euros are not. jonathan: negative rates is the deflation story.
simple for a lot of economies. the deflation story is traditionally not good for gold. is this a wealth storage story from here on out almost exclusively? francisco: it is definitely a wealth storage story, but i the story being heavily influenced by real yield . the foot from real to nominal occasionally, but it could get quite frustrating. it doesn't react to what we think will be a rally in oil prices. it could have headline inflation picking a very meaningful. rates are quite low. 3%we have inflation breaking and the next few months and the fed does not react to that, i think that is quite bullish for gold. across in general, yield central banks, they are all extremely cautious. they are very scared of hiking rates and that is a very good story for gold.
that means the supply of currency keeps on ballooning. alix: if you had a 3% backup and yields, you might see money come out of high-yield. what is a washout risk for the weaker hand in the gold market? francisco: i listen to those comments from howard marks and they cut of scared me a little bit because we are so far from 3% on the tenure. i definitely think we have 3% on 10 year yields and that would be pretty rough for gold. is going tonk gold trade well if the 10 year gets anywhere close to 3% in the next few months. i do not think that is very likely because i still see this deflationary pressure across central banks and the fight for it. one thing that could change the dynamics for gold is what happens to the oil price and how the said reacts to that and the ecb reacts to that potential increase in oil prices. everything is kind of intermingled right now, but i think the gold price in the next
months is $1500 an ounce as central banks delay any kind of hikes in fear of the unknown. alix: great stuff. such a pleasure to have the onset today. head ofo blanch, global commodities research. up, the yen ong pace for its biggest yearly gain since the financial crisis. why the japanese stocks like a weaker dollar next. this is bloomberg. ♪
oliver: there's been a lot of progress made on different fronts, but expectations for a rate hike are much lower at this point than they were last year. the red line here is basically looking at hourly earnings. the purple line is looking at pce, the inflation gauge that the fed uses. the white line is the bloomberg economic surprise index. the higher a goes, the more things are surprising to the positive side. the blue line is the s&p and down here you have jobs. all these lines are moving up from a year ago. the five things that the fed will look at . better expectations for a hike are lower and this puts into place how important this week will be. alix: that been meeting all
those targets and mr. haven't raised rates. i'm looking at central-bank distortion and what we see happening over in japan. this blue line is the nikkei and the white is the dollar yen. typically you have the yen and the nikkei move at an inverse correlation. you have a stronger yen and a weaker nikkei. that is not happening right now . you are seeing a pretty wide divergence. this was august 4 and this was when the central bank but $697 million of etf's in the nikkei. that helped move the index higher. the dollar has been falling while the yen has been strengthening. the reason i want to point that out is that we know the boj is buying more etf's per month. corporate japan is having a lot of difficulty. income is down the most since 2011 because of the stronger yen, which is why you should be seeing the inverse correlation,
but the boj is distorting that. yet another sign. jonathan: why track fundamentals when the central bank is maximizing the equity market? they own have to etf market already. my vote is going to go to alix because we traditionally follow correlations. you cannot do that anymore. it was close. they have been so near to their goals all year and still haven't hiked. today conversation for us on "bloomberg ." up next, doug ramsey walks is us up to the market opened. . ♪
opening bell in new york. happy monday. this is "bloomberg go. " david westin is on vacation. the big story is looking at stanley fischer pass comments. stanley fischer's tone made the early running -- one day the fed will hike again. that is the tone in this market. a bit of a hawkish tilt. the market saying really? are you? show us. rip -- there at w has been some re-rating. jonathan: and it can change. the fed is calling it complacency, i would say the market saying, we will baidu. alix: friday, all waiting for
janet yellen. -- will be joining us in a few moments. he is keeping an eye on the stock market which could be in a bubble. later, more with our interview of howard marks. markets.ck in the the stronger dollar is the story. jonathan: it is the story. if you look at the bloomberg dollar index up .2%. not a substantial way. so if i were trying to put a rate hike on the table, i would say that the market hasn't traded on that in a substantial way. the equity market in europe, the ftse is off .5%. here, marginally softer. the story and the bond market is the same one we have seen in the last 12 months.
the curve flattening. coming down by over three basis points. 3.5, to be precise. i would say where there is an asset class that is moving, independently of what is happening elsewhere, it is a commodity complex. when you look at wti and brent -- wti coming off the longest winning streak. , weall of the happy talk are actually seeing some supply come back online and maybe that is why there is a touch of their richness in the market. particular, eight consecutive weeks. the last time that happened, oil was that $100. now we want to look at individual movers. cominglooking at valeant back in the last two weeks. the company naming -- as the new cfo. the last two% in
weeks. there is still some hang for the company. the clouds are not totally dissipated but it is getting better. we have the pfizer-medivation deal. better than the deal in july. they will be coming out and commenting to say look, we are looking to be a targeted acquire. they appreciate the opportunity to engage with medivation. this deal does not have any provisions. strong dollar rally here. what it is doing for commodities, a decline across the board but hitting silver stocks hard. we see silver prices off 1%, they could be down by as much as 2%-3%. is off by 3.5%. abigail doolittle is at the nasdaq. let's start with you.
you are checking out urban region -- urban outfitters. abigail: urban outfitters was up huge last week but not so much this week. analyst lindsay drucker says the -- last year it was one of the worst-performing stocks in the nasdaq but lindsay drucker is saying they have turned the brand around. and there is not a lot for terms of improvement. -- disagrees. she thinks there is room for improvement especially around the free people brand. turning to a sock -- to a stock soaring -- up nicely. soaring on takeover chatters. if the company's japanese rival seeks a takeover offer it could be up to $24 per share. if this happens, it's a just
that the stock, already up more than 20 percent in the premarket, could trade higher by another 20%. alix: thank you so much. abigail doolittle joining us from the nasdaq. -- joining usitch from london. know, we were seeing gains in the stoxx 600 earlier. helped by a weaker euro against the dollar but the gains were short-lived. in commodity producers are really waiting on the index. the biggest move we are seeing .s a move down by almost 2% on the upside, retail stocks leading the gains at the moment. up .4%. one of the biggest gains today -- has beengenda some agenda.
--s is gaining after received approval from u.s. national security officials for the takeover of syngenta. that was one of the biggest regulatory hurdles before the $43 billion acquisition. hasenta gaining as that now been put aside. finally, the ftse 100. the worst week since before the brexit referendum last week. today, we are seeing it hit its lowest level in two weeks. a lot of this is down to the er heading lower. -- captures the bank of japan. look at the moves that we have seen in the last four hours. envelopeck of the explanation, expect price swings. a huge amount of uncertainty. we have the fed meeting and then
we have the bank of japan meeting as well. and we have a governor who is saying there is a sufficient case of making a move in september. joining us now to discuss is doug ramsey from minneapolis. look at to the market in a moment that i want to talk about the central bank speak. one is on friday, a speech from the fed chair and two on the same day about one month away. how do you navigate those in the coming months? discussion i heard a earlier about the fed having hinted at tougher policy and rate rises. and i think that our view is similar to what you echoed -- we will see it when we believe it. i think nothing out of september out of the fed. probably move in december and two in 2017 would be our
expectation. alix: in the meantime, nevertheless, you can still have a ton of volatility. what is the best way to protect yourself when you still need to make returns. i think short-term, there could be some former ability here. i say that less because of what is coming on the central bank front but more because of the position where some of our short term sentiment indicators are. and so on. showing a lot of optimism. that's coming into the news events is sort of a precarious position. i wouldn't be surprised if we had turbulence here at the end of august and and of september. but earlier this year, we did turn after, admittedly, we thought it would be a full-blown their market decline. it certainly was not, at least in the major u.s. industries. theink at least intermediate direction is still
up, maybe after turbulence here in the next 4-6 weeks. jonathan: we will dig into the markets later in the program. -- is worried about complacency. but actually, really, the market has not been complacent. it has been dead right. at the fed won't do a thing. are you seeing complacency in valuations? that is what i'm gauging from you. in valuations, yeah. we are little that on the fence with this, it is semantics as to whether the stock market is a bubble or not. i think we are getting close. i don't want to put too precise but anotheron it 10% on the s&p 500 will put a lot of the major valuation metrics squarely into what we one.d consider a bubble z getting up to the 1999-2000
values. the one we have alluded to in the last several months has been the ice to sales ratio on the s&p. it is pushing two times the all-time high. we are getting very close on the basis of that measure. alix: if you can take us through that a little bit more. it is we are close to that measure doesn't mean we will have to have a huge bubble bursting or a big selloff. we could say -- we could stay elevated for a while. certainly could. eventually you will see a reversion to the long-term mean usually, during a bear market we will be below the mean. but valuations in and of themselves give you no sense into the timing of the thing. is so have a fed that accommodated for so long and still looks to be over the next 12-18 months, i still think the
tightening cycle is going to be very incremental and cautious relative to what we have seen in the past. even 2005-2006. alix: we will discuss much more about where to put your money later on in the show. doug ramsey will say with us. now for an update on what is happening outside the business world. >> president obama travels to louisiana tomorrow to get a firsthand look at the devastating flood there. he was criticized for not cutting his vacation short to visit the state but the louisiana governor says he suggested that he not come until the initial disaster response is over. beginkorea and the u.s. their annual military exercises today and north korea warns it may launch preemptive attacks. seoulay it would launch into ashes. -- begin voting this week on the
party's leader. jeremy corbyn is favored to retain his job even though he has lost the support of most members of parliament. lawmakers have accused him of failing to campaign effectively to keep the u.k. in the eu. global news, 24 hours a day. powered by our more than 2600 journalists and analysts, in more than 120 countries. this is bloomberg. jonathan: thank you. coming up, oil falling today. that is on news that iraq is looking to boost experts. later on, more on our interview with howard marks. that is coming up. this is bloomberg. ♪
alix: oil is the future in focus. oil is down by 2% and this is the chart that tells a huge story. he white line is the wti price short positions for wti. in the last week we have seen an anonymous straw down in crude 57,000.s, down by the biggest we have seen since 2008. part of that, yes, we had a softer dollar but also, this jump here that you have seen since august 11 was because saudi arabia came out and said they would consider some kind of freeze. you had that huge amend to help drive able market in about three weeks. everyone expected oil prices to turn. steep.t turn was let's get to the trade. is alan knuckman.
we have a rock exporting more. do the shorts get added back? >> let's remember how quickly we moved. especially the crude oil market. it had a reversal and it stalls here at the $50 point. some of the fundamentals do paying heavy. so the $50 level is important to watch. alix: so the $50 level is important to watch. how quickly might we see short provisions come back if we continue to see a stronger dollar weighing on oil prices. i amat is the factor focusing on. the dollar. the talk this week is going to the rateeat hike -- hike possibility, probably unfounded, once again but it does give the market paths. so we have to see what you alluded to. count continues to
rise. fundamentally, the ability of producers to be able to flip that switch quickly changes the dynamics in the market rather fast. long positions come into the market as we saw oil enter a bull market, do they get shaken out? or do we see a 3% selloff? >> 2% or 3% is not that much anymore. it isn't a big movement. if they get back -- if it gets back below $45 then we could see -- the fear factor is a big concern here. we did rally for dollars and we are up almost every single session so the momentum remains. i want to see how it reacts after we have a bit of a pause. the upside. we built nicely on the reversal we had at the beginning of august when we made new lows.
time. when some people turn around and say, this time is different -- what do you say to them? is -- the, the issue issue by me like that measure, sales, sales are you little harder to mess around with their earnings or cash flows where there is a lot of management discretion as to what you recognize. sales are a hard number. the price to sales ratio, out of all of the three dozen measures that we track, it it has the highest correlation with subsequent 5-10 year returns in the stock market. so things could be different in with the said printing press that we have seen for years but in the long term i really think what you're looking our low returns to the stock market being baked in. your in your portfolio,
exposure is 60% which some might say is quite high. in part, is that because of central banks? able to have that equity exposure? doug: i certainly think that central banks are impacting the market internals. you are right. we would consider that an aggressive position given where the evaluations are. so to some extent, we are participating in the party. but it really has to do with the breadth of this move off the february lows and even off the brexit lows. so there has been fairly broad dissipation. we have had longer-term things turn up that usually indicate the market being on sound footing for another 12-18 months. i am a little skeptical at some of the measures but for now, the
balance of other things that we consider -- economic input, fed policy, inflation measures, orchid action -- that right now concerns to offset the that we have. primarily with valuation but secondarily with the sediment observations. it is popular to say this has been the most hated all market of all time but some of the sentiment readings we are seeing now would say otherwise. people are on board this rally. so again, a little short-term conscience but i think we will be making new highs this year into 2017. jonathan: looking at some of the asset classes, you think we are won'tching bubble but you de-risk and you have explained why. -- driven by the bond proxy and defensive stocks. what does it look like for defensive's? doug: they look very expensive
to us. some time.ve for we have not participated in this move for the most part your to date. looks expensive to us for quite some time. utilities are almost 25 times trailing earnings. above where they have traded historically. they have new highs led by the staples,ke telecom and utilities so it have to believe for this market to latelegs and to carry into 2016 and making new highs into early next year, i have to believe things will broaden out. in terms ofsectors quantitative worth our technology and industrials. we start to see a pretty good balance in both of those sectors or at least industries within those sectors. go ahead. alix: what we haven't seen, and
this is what you might mean is ,e haven't seen retail come in the huge rush of money that would really propel the s&p much higher. you know, i think, in my mind, there are a lot of fully invested bulls. the psychology is nothing like the late 1990's. i will grant you that, where the stock market was the number one topic of conversation in casual business discussion. you haven't had that yet but i do think there has been plenty of participation if you look at what is going on with the index funds. whether we get a true rush -- that would be the bull case. 2000 type ofrch of
valuations and the public finally gets encouraged. and typically what encourages the public, it is not a function of valuations, it is a function of the economy. we get to full employment and retail investors are convinced things are ok. alix: great to get your perspective. doug ramsey, thanks very much. moments away from the opening bell. .3%.han: future soft, down pfizercks to watch -- and medivation. the market open is next. this is bloomberg. ♪ [ clock ticking ]
we should fit into your life. not the other way around. ♪ everything is cool when you're watching a screen ♪ ♪ everything is awesome, ♪ when you're sharing a meme ♪ ♪ a voice remote, "show me angry kings" ♪ ♪ you know what's awesome? everything! ♪ ♪ apps that please, more selfies, ♪ ♪ endless hours of the best tvs ♪ ♪ brand new apps, shows to go, ♪ ♪ awesome internet that's super whoa... ♪ ♪ everything is awesome xfinity. the future of awesome. jonathan: to our viewers globally, this is "bloomberg ." cacheonds away from the open a new york. futures are softer.
an ugly session shaping up in europe. the ftse off by .5%. if you came in early today, the story was dollar strength but we are racing a lot of that with dollar-yen. when you think about the commentary we had over the weekend, a dovish kuroda and a stanley fischer. a 10 year are coming in about three basis points. we are seeing a bull flash and. the short and not doing much at all. and crude giving up some of the gains. we trade 2.39% lower as we in to the0 seconds open in new york. let's get to alix steel. alix: a firmer dollar, setting the tone. a far cry from the record high for the dow and the nasdaq.
2190. that is what you have to look out for. was up forthe nasdaq eight straight weeks. no surprise to see profit taking bear. in terms of the dollar impact oil story, we are seeing it gets hit. oil is down by 2%. anadarko petroleum down by 2%. the oil and able market for three weeks. so no prize that we are seeing profit-taking among these names. the other thing we want to highlight is retail. -- we have a deal? pfizer and medivation, wanted to hit that as well. than sueis 35% higher
no fee offered. medivation can check out other buyers. -- says they will remain a critical acquirer and would enjoy to discuss any kind of acquisition targets with medivation. this bid, $14 billion, going through. gotk out retail -- we earnings last week and we get analysts weighing in. l brands upgraded at goldman. helping the stock. -- holdings upgraded at hyper due to a turnaround. urban outfitters, a cut saying they are at near peak operating performance. their best case has already been seen. so much. thank you the big driver of trade in the last 24 hours is the speech from stanley fischer. of theppens when 99% market don't actually read the speech? crossover to mohamed el-erian.
joining us over the phone. take the speech, you headline and you extrapolate. and the market seems to trade on that exclusively. you have read the speech. what does the speech actually say to you? el-erian: first, it says that the fed has progressed a just on the employment objective but also on the inflation objective. second, it recognizes that the other policymakers to step up to their responsibilities. third, it tells you that the fed is as worried as others are about structural issues, and not just cyclical issues. but that together, guess, it is somewhat more hawkish but as you know, i have felt for a while now that markets were underestimating the potential for a rate hike this year. jonathan: to that extent, you
have a market conditioned by fear and the fed will say one thing and do nothing. how can the fed actually get a handle on market expectations in a material way? we might have edged up in probability but not in a material way. mohamed: i think it is a very hard issue for the fed because of what you said. over and over again, the markets have been conditioned to believe that when push comes to shove, central banks in general are going to be dovish. add to that what you rightly said, the bank of japan gave dovish signals. and the market doesn't believe massive can have central bank divergence. that is the reality at at some point you will have to break that conditioning. i don't think the market will break it on its own because it has been an incredibly profitable trade with the market to believe that it can lead to the fed over and over again. it at some point it will be the
fed that has to lead the market. do you feel like stanley fischer -- making be more dovish comments, did that speak for janet yellen on friday? chaird: we will see what yellen says on friday. the markets will have to work extra hard at trying to figure out what comes up. i would look very carefully if -- at the balance between cyclical and structural issues in chair yellen speech. the more focus on headwinds growth, the less effective low interest rates are. and the higher the collateral damage. jonathan: i just want to pivot to the bond market quickly. i will describe what i can see so you can understand on the phone. the u.s. 530 spread, something you are familiar with has gone flat. 110 basis points. if the message coming out of the
fed is one where we will run things hot, on a risk reward basis, is the right thing to -- recent getting the flattening of the trade over the last two years that we have seen? tough question. the fed controls the short end but not belong and. you are asking me a question that has not just to do with the fed what other central banks. the long and will continue to get pressure from what is happening in europe and to a lesser extent, for is happening in japan. thehink of a curve around for-five year point. it changes completely when it comes to the influences. it is hard to see the flattening refers to any time soon, even if the fed becomes more hawkish as europe and japan are a long way from getting to any sort of economic lift off. can central banks actually diverge in terms of monetary
policy? theknow the speech title -- " federal reserve monetary policy toolkit." i know that i'm asking you to read tea leaves but can we expect something more on structural change? what they have in their toolbox? mohamed: there are two elements that are important. the first one is -- what happens if we get into a recession? start from interest rates so low -- there is a whole debate going on as to what else could a central bank do if it cyclical policy tools have already been used to fight structural headwinds? the first question is -- suppose there was a recession tomorrow, what with the fed do? would it go negative? would it not go negative. ? the second is a debate that is being fueled -- including williams at the san francisco banks haveld central
high inflation targets? should they think about changing the parameters that have guided policy? people will look to chair yellen. i think we will not look at anything more than theoretical discussion. i don't think this is an august 2010 moment when the chairman introduced qe 2. jonathan: there is a cynical of this to all conversation and that is if you can't hit your inflation target of 2%, why can you hit it at 4%? can you bring back the intelligence to the conversation after i dumped it down? i treated over the weekend that i wasn't there yet in terms of thinking that a high inflation target would do it. for the reason you just mentioned. they are having problems getting to 2% anyway, and there is a reason for that, they don't have the tools suited to deal with
structural issues. what fundamentally ails the economy is not something that monetary policy can address, easily. monetary policy cannot build infrastructure. monetary policy cannot stimulate progrowth reforms. i am with you. i am absolutely with you in this debate about whether to increase the inflation target ignores the fundamental issue. the only reason that it may work -- and i say may -- i am not it may push politicians to finally do what they should do in terms of economic governance. william saying that last week. moving to the fiscal side of the conversation. the next big debate is the inflation target and the neutral, long-term rate. liam sees at -- williams sees it at just above 0%. mohamed: somewhere in between.
the fed has been coming down consistently. like any other central banks, they do this in a gradual fashion. there is a recognition now that the neutral rate is much slower. the one thing that stops them from going to wear the market is is that they are not sure what the answer to the productivity puzzle is. we don't quite know why productivity is low. is it a measurement issue? does it have to do with a loss of structural changes? until the answer that question, they will be very gradual in adjusting what the new tool -- what the neutral policy measures are. jonathan: great to have you on the program. mohamed el-erian. lots to discuss and we will continue here on bloomberg. coming up, the bloomberg roundtable. 10 minutes into monday and 10 minutes into the week. equities a little bit lower. the dollar is gradually
alix: this is "bloomberg ." coming up later today on bloomberg television, michael hurley previewing janet yellen on friday. ♪ jonathan: from new york, this is bloomberg. let's get up to speed on the markets. a softer session as we kick off monday. down .4% on the dow. softer on the nasdaq, down .3%. marginally stronger on the session.
let's get to the movers in the nasdaq with abigail doolittle. abigail: we have stocks moving on the open. shares of intercell are up more than 20%. on chapter surrounding the possibility that the company could be bought out by it's the japanese partner. the buyout could come between $23-$24 per share suggesting the stock that is up now could rise by more than 20% from here. want to keep an eye on. another stock trading higher in thatake of the m&a is -- is on the news that pfizer is buying medivation. according to -- the company has increased appealed you to scarcity. -- rake even in the fiscal year 2018, some of these companies are willing to pay out for growth.
jonathan: let's continue the conversation on what is happening at the fed. renick us now is oliver and -- it is the bloomberg roundtable. you will listen to the comments from mohamed el-erian. dumb down thed cover station. if you can't reach 2%, how can you reach 4%? the big debate here is, should we start raising rates now or should be wait until inflation is at the 2% target and then raise rates. if the fed were to adopt the latter tack take a dovish approach, you would see inflation rising and you wouldn't have concerns about raising. raising the inflation target would have the same effect as saying, we would wait until we are at 2% and then we will start tightening. is the cap of where the
market thinks it will go. matthew: -- said even nine months ago, before he joined the fed, he interpreted the 2% target as a ceiling. that shows you how endemic that viewpoint is to markets. jonathan: i want to pivot and turn the conversation to vince. i would say that main street won't be following what happens in jackson hole so i struggle to see how they would recalibrate consumer expectations. and the conversation on wall street is a cynical one. we are already down there with rates on the floor. , how are from 2%-4% you going to reach my expectations in the market when i'm going nowhere? their they would lose credibility. you can't hit 2%, you can't hit 4%. the fed is behind the curve is because the economy is not generating velocity.
funds are not turning up. the can't force you to take money. and they have absolutely zero -- to get people to take funds. putting up the price is going to do nothing. everybody looks at this as or 80's. is a hike they are not hiking. the money supply stays the same. to thatd that speaks everyone hates the stock market but they are buying into it anyway. if you don't reduce the balance sheet, why would you not be in stocks? all of her: for a long time this has been a rally that a lot of people have been hesitant to take heart of. one of the most interesting moments now is the shift that is happening in terms of decisioning. we are on a broad or long-term basis, you have high cash levels. you have a hesitation on behalf of the retail investor. ofre are a lot of signs
positioning getting bullish. bank of america has reported that hedge funds are more long in s&p futures than they have been for some time. asset managers have been buying stocks. that to me is particularly relevant because we are going into a week where we have a lot of investors that have been bullish on the stock market because of the type of qad backed up and low rates. it now that we have temporary bullishness, anytime you get a miss, it will be a big deal. miss, it will be a big deal. jonathan: we have the title of the speech -- "toolkit." that is coming on friday. will they talk about using a balance sheet? >> i think we got a nice preview of this last week. the fed published a paper and he was talking about how if you took the fed workhorse model and
ran simulations through it and his findings were that if we can get up to 3% that the f1 see , then we is a long run can cut rates 300 basis points in the next recession, go back to qe, use forward guidance and we should be fine. the big question is, what if you don't get the 3% because not many people think that is plausible. a that case, you have to lean lot heavier on the balance sheet policies. and you will be hearing a lot more about needing fiscal hope. so the fed stated intention right now is to wind down the balance sheet. i think that is a placeholder. we are going to find out more about the actual plan this weekend at jackson hole. terms of winding down the balance sheet, i don't see how they can do that right now. if you take away the bounce -- there isake away
no longer a bid in the market. who will buy bonds is the fed says they are not? there will be a massive collapse in that asset market. then you will see rates go up. alix: that is a good point. gets more aig said it liquid as you go. you have to go further out to find anyone who wants to buy a bond. jonathan: we caught up with howard marks and this is what he had to say about the prospect of a higher rate on a higher yield. howard: the problem is not with and one ofe return, my sayings is -- you can't eat relative return. the problem is with the absolute return and be central banks have brought all interest rates so low that even if we have a nice spread on high-yield, it is still at a low. jonathan: this is the point. we have been talking about
spread and the yield pickup from equities but look at absolute yield versus risk assumed. at what point do we actually start trading on his yield, risk assumed and this is what we need to do. all of her: we have talked about relative yield is when you look at the absolute yield, it is very low. when you have to think about where people are putting their money, i think that for the foreseeable future, the relative -- you arebe driving looking at that right now. the s&p moving to percent ten-year is significantly below that. when you look at where asset managers are putting their money , look at flow. you can say, do i want to go into stocks or high-yielding bonds? there has been a reversal, even though we are in all markets,
the money is coming out of the bonds and going into the stock markets. i hardly see a change at any time soon unless there is a -- there iseparture a significant departure. alix: oh, man. you with great to have us. looking ahead to the big speech coming up on friday. bloomberg.ge here on janet yellen heads to jackson hole and we find out what you really thinks. maybe. coming up is "bloomberg markets." david, what is coming up on the show? david: we will continue the conversation you have been having but we will talk about the speech that stanley fischer gave in aspen. up the fed conference coming at the end of the week. we speak with the head of global credit for a be and a lot of
deals news. we talk about pfizer's medicine. for buying and syngenta receiving approval from u.s. regulators. jonathan: thank you very much. do these guys ever go to the beach? i would throw my name into the hat. alix: david has two kids at home. said watching. more coming up next. this is bloomberg. ♪
this is all about pfizer trying to beef up the cancer drugs and the question now is -- what happens to sue no fee? voices in my head are screaming. people are shouting -- nobody cares and the only thing that matters is friday and the speech from janet yellen. given the noise we have had in the last week, this is becoming more significant. alix: we will be watching what she will say. jonathan: wait and see. 26 minutes into the session. that is it from "bloomberg ." this is bloomberg. ♪ >> it at 10:00 in new york and
this is bloomberg "markets." david: from new york to london and cover stories from frankfurt and rome. buy medivationo in a deal valued at $14 billion. we will discuss obligated gaining of blockbuster prostate cancer treatment. then come the bloomberg dollar index climb to a one-week high after the fed vice chairman sally fisher said the u.s. economy is already close to meeting the central bank goal and growth will pick up. we will get an investor take this hour. david: why gdp is so 20th century. we look at why the measure is increasingly struggling to keep up with the pace of economic change.