tv Bloomberg Markets Bloomberg September 28, 2016 3:00pm-4:01pm EDT
♪ we are live in new york for the next hour, plus covering stories from london and saudi arabia. oil prices up over 5%. by 32to lower production point 5 million barrels per day. stocks are turning around and are now near session highs. a fresh outlook on the markets as part of our global coverage from the most influential summit. beginning to respond to a criticism of a lack of diversity , the women's conference is a the issue head-on today. james joins us live from that event this hour.
the close hour from of trading. julie hyman is here with the latest. julie: thank you, oil. spiking on the headlines. 32.5 million barrels per day, a reduction of more than 750,000 barrels per day from the august outlook of -- output of opec. higher, andes are here is the price of oil, the biggest one-day surge of oil prices going back to april. analysts who follow the oil market are saying there is little suspense here. happens inrdle november and we could get more granularity as to what the individual come -- countries are targeting in terms of oil production and oil production cuts. takeaway is there is a
willingness to cooperate that we have not seen in quite some time . indeed, the eight year milestone , talking about production freezes in the interim and certainly in the recent past. it was quite unexpected. you can follow along with commentary on the bloomberg which gives you a live blog following the events in all of the commentary. let's take a look at the groups on the move. energy is of the most. andopping 4%, huge gains even though you still have groups like telecom and utilities that are lower, it is outweighed by energy shares. been some of the oil companies hit the hardest by a drop in oil prices. chesapeake is so volatile.
that is nike. down 4% after the company's futures orders up over 1% versus a 5% estimate in part because of armourtion with a under and adidas. nike is the dow and paid for its first down near going all the way back to 2008. >> mark crumpton is in our newsroom. mark: for the first time since he took office, congress voted on a measure veto that would allow saudi arabia to be sued for its involvement in the 9/11 attacks. earlier, the senate voted 97-1 to override, more than enough to clear the threshold.
the no vote was from harry reid. the legislation could open up the u.s. to lawsuits around the world. john kerry is threatening to cut off all contacts with moscow over the war in syria. secretary kerry issued the call,tum in a phone insisting the russian and syrian governments and their attacks on aleppo. concern forxpressed civilian infrastructure. at least 13 billion civilians have been killed for an airstrike in the residential building in the eastern part of the country near the border with pakistan. it carried outid a counterterrorism airstrike in the area and was investigating afghan cashel tease. at least a dozen other people were said to be wounded. tennis icon serena williams is
joining the national conversation about lack men who died in violent confrontations with police officers. williams took to facebook to express her fears for the safety of her 18-year-old nephew and others. is nothasized she broadly painting all police officers with a single brush but said ignorance and fear are, in her words, affecting millions and millions of lives. global news toy four hours a day powered by more than 2600 journalists and analysts in more than 120 countries. this is bloomberg. thanks and we will be back in a couple of moments. this is bloomberg. ♪
vonnie: let's get back to bloomberg markets. he is standing by with erik schatzker. erik: thank you for spending time with us. one thing people know you for is for what you are not. you're not really a hedge fund manager. you're in the smart data know youbut they also for the perspective you have brought there on the hedge fund industry. you have rich -- raised questions about edging -- hedging and you have been a critic on fees. where i want to start with you is what does the future hold?
, startingu were right in 2000, raising the questions, you proved to be right. where will we be years from now? >> basically, not a devastating critique, but saying they are not diversifying enough and they charge too much. we wrote a few pieces saying what we think should happen. people should get more disciplined. isthere is any argument, it not for doing with jacked us. part of this is passing along. how much of it is something you can really get only from the manager and there will be broadly different opinions, and is knownof it strategies? today, smart data, part of what hedge funds do, they figured out
these strategies. there is nothing wrong with a portfolio of these things. the problem with hedge funds for a lot of years in my opinion has been discharged as if it is all alpha. what i hope is hedge fund investors use their power to -- thathe hedge fund they put pressure to bear. we see a lot of things. to use theirthem power to lower fees and really what is worthout paying, what is this fundamentally trying to produce? it fits into a passive come along, off a, perhaps good but strategies that are not unique
to that. i think we are on our way to that world. >> let's start at the top. let's say if you can generate alpha a long time. hard question. >> i'm glad you said -- you did not say it is ridiculous question. >> no. if you define off as unique and you cannot get it anywhere else, you get into, in my opinion, i have not seen a better answer, you get into game theory on what you should charge. in principle, you could charge .lmost all of it i could beat the market with 5% every euro the time. not only 5% of alpha, but i was perfectly consistent. say, that is gigantic.
a guaranteed plus 50. that is a fictional world. where you going to -- the prices get laid down. fraction.rger i do think there are things in the world that generate alpha. even we will look, when i talk about these factors. better.o make them >> there are 9000 hedge funds or howthing in that order? many people in your experience having studied this
statistically can do it. how big is that group? >> 11. i think most of the time you look at these and the numbers are closer to 50-50 then you could imagine. .mall edges matter a lot if you look from 94 to the present, after i take out the factors, how much are the value, have their weaknesses and had a positive outlook. be more than half if it is evenly distributed. that has not been the case for the last seven years. it has been flat, close to nothing. are not fully invested so i compare them to the s&p so it is flat. i cannot put -- cannot prove this is going on but it is consistent with a world in a smaller industry with -- more aggressive and a large incident -- industry finds it more difficult.
if you looked over time, the numbers would not be terrible. last six orover the seven years, the numbers will not be dreadful but very mediocre. mediocre and going forward, i think we will continue to see and i hope it leads to a reconstructing industry with more hedging going on. >> on the one hand, there is pure data, factor based investing, which you charge more basis points, but that is something you see narrowing all the time. then there is hedge funds. we have not talked about the other animal, the actively managed mutual fund chasing the another benchmark and overwhelmingly underperforming it.
what happens to that animal? we have seen outflows rather steadily from that over. into facten inflows based investing and etf's, which are a mix. are factors, industry targeted and whatnot. here is my vision of the world. i do not know when it will occur but i can imagine a world that of factornsisted products that actually hedge all the market, more transparent in what they did and charge fees. atost half of our assets bp -- beat the benchmark.
i think they are reasonable but it is a constraint. who believes they have extra information, you have and theion on the long short side, the only way to express you do not like something is to not own it and it is sometimes not that interesting. very long-term. i have seen a world more split between the two and would make the pricing more easier because it would not be a package of the different slices. they would be more clean. short-term, i will forecast more of the same for tougher times. >> he talked about outflows from hedge funds and mutual funds. are both happening. a number of institutional investors taking money out of hedge funds are putting the money into private equity. it seems a number of big
assumptions, among them the private equity will generate better returns, the private equity will generate less volatile turns -- returns, if it securities, it is something else, could be hedge funds, could be private equity. if you do not need the money, it is ok to give up liquidity. and maybe they are not as much cowboys. know i can comment than thehe risk side return side. i think the return on equity will be lower. i cannot imagine those prices -- i would be a little bit of a civic of an abnormal advantage. on the risk side, i do not buy it, to be frank. the reason to invest in private equity if you believe there is a big return.
fromisk side largely comes market to market very often. in the asian debt crisis of 1997, where i was a cited my portfolio was flat that day, the guy who ran private equity came over and said i am beaming and he said me too and i said no you are not. the s&p is down 7%. if you had to sell today and he said, but i do not have to. that is true but if we enter a long bear market, diversification is a function of the real price and not that price. it might make a great investment but i do not think it is coming from the diversification side. i think that is more often about how you can market these things. >> i want to talk about what you are doing differently. you found something that works for fact based investing.
there something else that you think might work? >> we have today this and tomorrow that. to long done more than just equity markets. we applied them to bond markets and commodity markets, things like value and momentum, quality , they work in a similar manner. when i use work, i mean as a statistician. this,r car worked like you would fire your mechanic and we have extended that and we are finding very tight ones, not data mining or creative craziness, credit markets and other fixed income. one thing that is odd, with fixed income, zero. i'm excited to be pushing the frontier of some of our stuff into three -- fixed income.
return ondicts total fixed income inequities, pretty low compared to the past. about is a'm excited for some things we are doing, extending what we are doing to places we have not yet. we will eventually run out of places but we have not yet. none haveoldly were gone before. >> my inner geek. >> thank you so much. the founding chief investment officer. thank you. an exclusive conversation with the morgan stanley chairman and at the executive women's conference in new york later this hour. this is bloomberg. ♪
funny: --vonnie: we go to julie hyman. out in chicago at the cboe, good to see you as always. like many investors, we are trying to assert the handicap lessons. what do you think we're going to see? >> is interesting, a little bit of trepidation and risk on the fomc meeting. it is all about uncertainty surrounding the elections. we are under 13 but you go to the contract in november and you see a steepening in the risk there and certainly, another jump in december, when we may we plante hike and then
out for 20 in the horizon there. other words, people may not expect volatility in the but they'reerm, looking for it to common than some getting out further into fall and winter. >> that is right. it is a function of the certainty surrounding the election. if you have the polls where had of each other, things would come down a little bit surrounding ist and of course, the fomc constantly going to be hanging aer the market until we have clear-cut direction on the pace and scale of the rate hikes. julie: that will affect the overall, as always on individual stocks. andeports earnings tomorrow costco has had an uneven couple of quarters.
inelieve they beat estimates terms of earnings and missed a couple prior to that. where do you think this one will shape out -- shakeout? >> you look at $1.73 on earnings. an important story, they quested and killed on revenues and their beating up the stock. very ambitious members. i am not super bearish on shares of costco here but i'm not as .ptimistic i will go ahead and sell the call spread here.
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sanders ise campaigning with hillary clinton in new hampshire. it is their first joint appearance since the vermont senator endorsed hillary clinton after a sometimes it are campaign fight. she is struggling to win over the millennial's who supported sanders' primary campaign. would it at a shooting in that elementary school. i suspect is in custody. injuries are not life-threatening. the schools located near the georgia state line. has advanced the spending bill after lawmakers reached a bipartisan deal to keep the government-funded after friday. the vote clears the way for a final passage later today with the house planning -- through
december 9. it includes money to combat the zika virus and in indiana. the water crisis will be handed separately. marco rubio's calling for an investigation into the crash that killed the miami marlis star picture and he does. senator rubio wants the u.s. to examine where the accident occurred. to navigate and has been described as hard to see at night. will be heldewing tonight and a private mass will be held thursday for family and marlins players and personnel. powered by more than twice its hundred general -- journalists and analysts in more the 100.6 different countries. >> the stock market closes in
just under 30 minutes and what has happened is the s&p and the thehave moved higher on strength of energy shares as opec reportedly agreed to a cut. little changed right now, up 2.5 points. let's check in with abigail doolittle on the nasdaq. for thehy-washy day nasdaq. spent much of the session down modestly up ever so slightly now. .ould be right down to the wire we will have to stay tuned for that. a lot of moving pieces starting with the drags. the biggest down on a downgrade. he has concerns and thinks there are -- there is risk. is not reallyag
on any news. wey tuned for that team as do hear from our nasdaq segment. earlier, it has been settled. should bigger booths for most of the day, amazon. reinitiated with a new rating. biggest sale, play in the cloud space, in the cloud space, and on hundred $50 price target. a few other analysts recently coming out, $1000 on amazon. apple andention amazon right now are jockeying for the top spot. another one to keep an eye on. scarlet: a lot of moving pieces.
how is that big investment strategy working this year. >> whether or not there is a decoupling within the tray, we'll take a look at 3330, we see that facebook and amazon are really killing it this year, up more than 20% this year. aboutors are concerned the quarter, in sharp contrast to mobile ad revenue, really growing so strongly. is out forstion that. the stock is up on the year. interestingly, we have paul sweeney saying he does not think it will decouple. still part of the big internet trade. it is still double-digit.
intelligenceberg -- that the growth writers are really far out into the future. it could come down to the bottom line. an interesting take their. , abigail reporting live from the nasdaq. >> agreed to cut oil production for the first time in eight .ears nymex crude prices jumped as much as 6% in today's around-the-clock talks. the group supplies about 40% of to 33.5 green to drop million barrels per day. joining us on the phone, senior energy strategist. a surprise is this an du expect to see this persist in the market? >> this is a surprise because , short in oilds
becausen to the meeting they knew there would be no deal. so, we now have a deal. i believe it when i see it. i do not believe it. i think it is more of a market overreaction to the news. the need for a production cut, each country has its own agenda. the producers are basically producing near all-time high. saudi arabia is near all-time high. in general, near all-time high. takefore, that will not
off the supply. that willd that, bring the whole market imbalance . a reason we have supply is because of strong shale production. and higher oil prices. any time in their history. therefore, it is really in a no-win situation. if they do not cut production, prices continued to plummet. there has to be recognition that she is here to stay and they have to factor in and get used to it.
>> you mentioned you will believe the cut when you see it. to be enforcedng in our markets going to judge of the agreement question mark >> a great question. has never been able to it only saudi arabia single-handedly can do that. it never works here. is lifting on contractors and oil companies to increase oil production. nigeria, allia, the countries want to do what ,audi arabia is doing .ncreasing production the focus right now is you do
not want to lose market share but when doing it, it is a no-win situation as i said before. i have little faith in opec. >> thank you for analyzing and breaking down the breaking news today. wheret: let's head to morgan stanley's conference is taking place. alix steel is standing by. >> thank you for being here. it is nice to be with you. here today at the executive senior conference
executives from around the country. be uncertainty, you also have brexit. most worried about . the fed elections in the u.s., the chinese economy, i put those as the top three right now. whereis never a decade business leaders coming your job is to sort through that which matters from that which doesn't. not look for perfection in making decisions but moving your organization forward. big banks, what do you do, would you go, you did not mention that risk.
>> brexit happened, so we are dealing with certainty to some extent. we know that has happened. financial institutions, as the rules unfold, we will see what we do in terms of resources generally. brexit will unfold over a couple of years and the election will happen. or not move on interest rates and the chinese economy is the big enchilada. >> you mentioned before brexit happened, they were saying they would have to move about 1000 workers. do you have a better estimate or a headcount? really we're sorting all of that out.
>> where do you look to when you have two years too late. >> where the folks want to work and where business is done, it is the obvious candidate. frankfurt, paris, they are clearly places we're looking at. we do not need to be and we have enough time. we have operations in madrid and paris and frankfurt, all across europe. it will be a matter of how you move the resources. terms ofu rent them in your biggest risk right now? >> that is tough. i think for the markets, probably the u.s. election. it is binary. it is either trump or clinton. to different
consequences. we are in the state of relative uncertainty. probably the most heightened level relative to the last several elections. we will talk about that. >> gdp growth about gd -- most were much stronger than they were precrisis. consumer debt is down, the u.s. economy is working. is it phenomenal, no, but it is working. it is not a zero interest rate economy. >> the market does not believe them. credibility to even get anything done. how do they do it? had eightket has
years of no interest rate rise. i would be surprised if we get through this without a rate hike. it is almost an admission that the fed got it wrong a year ago. decemberd the process 15. i expect further rate increases as we go ahead. >> the third one you're talking about is china. what are you seeing there? it is growing at 2%. china is where global growth is going right now. the leadership under gigi paying is clearly taking control. a lot of things going outside
the country. building domestic demand, adjusting to the fact the lower export market, these are all the issues they are dealing with. china is where the action is. do you feel the risk and volatility will be? season up capital markets, dca risk of that in china? >> this is what markets do. everybody would make money all the time or nobody would make money. you will have volatility because markets overreact and under react. last year, i thought it was an overreaction. the up session around exactly which month the fed will raise rates i think is an overreaction . the long-term trend is what matters. i continue to expect volatility. what matters is the world continues to recover from the
financial crisis. >> overreacting, that brings us to european banks. the market has been extraordinary's -- extraordinarily stressed. have you changed your relationship at all or the way you do business? >> not know -- not at all. we went through the situation several years ago. great respect, he is a terrific guy being dealt a tough hand. it is going to be messy. they work their way through this. we are not -- they are not behaving differently. >> -- a year ago?
>> we're not. we manage the risk across institutions. .nder reacting you've got to be balanced through this. -- >> markets are really blowing this out of proportion ahead of morgan stanley. whether theynow are or not but you are asking about our relationship. it has not changed. -- honorably and helping them through difficult times, obviously, i will not talk about the strategy but obviously, they have strategically -- strategic issues. they will respond to that. >> there is some kind of the
market reaction and ability to lend through growth. do you hear your clients to markets at all because of that? >> i am not seeing quite the drama. this institution is facing important strategic decisions as we did several years ago. i'm shocked we have come to that. >> easier dodd-frank world are maybe you will have relaxation in that area. man you get $41 million in doing business for the wells more than double the a
have. u.s. capitol's have more than doubled with they have been a front end, every year, letting you go to the doctor, we go to the fed in every year, the test changes a little bit based on different economic scenarios. got to have a backdrop of much stronger streets. all banks that went through it, all the major banks that went , they haves sufficient capital to distribute to shareholders. --the backend, cut for bed god for bid something happens to somebody, without bleeding into the marketplace. the banks are more resilient.
coming outllen saying they are taking a look at, has banks and they see the pattern of compliance issues. these are strong words from the fed chair. some of the rhetoric from that is that banks will be on the hook again, back in the spotlight. do you feel that the be the case? >> certainly as long as i've been in the job -- >> not as much heat as a few years ago. it is a different environment. >> with u.s. banks now to where they were five years ago, and where the u.s. banks now relative to some of the foreign banks. whether we like the program or they did it aggressively and right after the crisis. they did it at -- after the weakest moments. they can continue to grow in the years subsequently. more to shareholders.
it is a dramatic the better position than several years ago. >> that is part of the reason the european banks struggled there. i am good or i can take on more regulation. presidency, clinton that would be greater risk. >> we have been -- we have had more than last 50. we have 70 today. we have a balance sheet of 1.2 5 trillion. numberse life-changing in terms of the stability and strength of the institution. we have done that as a result of we're not after
that now. we feel they are sufficiently strong and stable that we do not need it. >> a lot of uncertainty. it seems like the market was expecting a clinton presidency that will be status quo. how are you make a decision today to prepares a decision today to prepares of four indecision over the next 6-9 months? >> i do not think you can call anything will be status quo now. i'm pretty sure the campaign would not agree they're protecting status quo. look at the u.k. elections and what happened with reich and what is happening in europe and the protest marches on the inbal rate that took lace munich a week or so ago. the political landscape is anything but status quo. you cannot plan for what you do not know. a former cfodo is described it as, you settle close to shore and bring back
your positions p closer we got, the more conservative we were. not because we see it as a trigger point, but in case the markets react, in a very volatile manner, it is minimal and that over time, the markets adjust. based upon the field. we do not make the best decisions based upon what might happen weeks from now and what it might lead to. you run a company based on sufficient capital, you stay away from the road -- from the ones you do not. it is not that easy, but no. >> we talked about this earlier. and 40l be's the king minutes. what you say to the business
leaders? >> i will talk about two things. one is macro. asia, views on southeast what is going on, the recovery of europe, the impact of brexit, all of that, and then transition to a i think is really bad, how to put together the organizations, how to think about planning and teams that are both confident. leadershipk about a the nextive years, five, the next five, the next five. and then to make sure what we give each other to grow and develop is in shorthand. those are the three things.
that is my speech. i do not need to say it. all the processes for the next year or two, that israel. not. 4.9, probably know, i remain confident on china. singapore's gdp has settled down around 2%, moving into a more developed market phase. asia remains. so much is going on in asia. transition, it has been rare to have a decade were all three regions in asia are going through some form of transformative change.
it has not happened but it is tough. i have met with the governor several times. i get the japanese -- i give the japanese leadership credit for doing something. we have had four decades of economic and fiscal and structural inaction in japan. then they went to the extreme and basically took on all of that monetary, fiscal, structural reform. until you change the demographics in japan, they have a shrinking population. until you change that through birth rate or immigration, they will continue to have major structural problems. in the meantime, doing what they are doing on the fiscal front, necessary but not sufficient steps.
>> do you feel the result will be the money while you wait for this to kick in? >> changing your birth rate, when they had a population one for mom, one for dad, and one for the country. just stabilize the population decline. they have cut massive challenges but it is also very technology savvy, a very well organized country. they have had mature and deep industries and a robust banking system and a high savings rate. count the japanese out but do not look for miracles.
>> fair point. in the other parts of asia and the philippines, huge rush of money into that. worry that money is not sticky? they love investors in there that are not here to what is the dynamic? so now, negative yields, which we have never had before. >> it is one of few regions that have been on the planet, mesko is doing great. terrible across a lot of south america. i was there, i did not get a sense from the business folks i was talking to that these countries are destabilizing to but clearly, in any emerging market, they are relatively liquid and small. small movements matter much more than they do elsewhere but it does not feel that way. >> it is such a pleasure.
i feel we have covered everything. thank you for your time and i really appreciate it. scarlet, i will send it back to you in the studio. joe: thank you. that was great. speaking with -- the women's conference. we want to get a last-minute check on the market. a pretty solid rally today. the s&p up just under .6%. a lot of these gains fueled with the news of opec's, leading to a big surge in oil prices. >> it will be interesting to see whether oil prices kick up that momentum. a looking at energy stocks, they were obviously the big gainers, up 4% earlier within the big energy companies and the s&p 500, the only member of the s&p ,00 energy index did not rise it was down marginally. there is a closing bell, the dow
up 113 points, s&p 500 gaining and the nasdaq up. you are looking at a recovery from yesterday's decline, so the volatility continues. what do we have here? rally with oil, wti gaining more than 40%, the russell 3000 energy index gaining more than 4% as well. joe: let's take a look at those commodities because that really is the story of the day. if we look at oil, you can see it surging, coming off the highs a little bit. it was above $47 a barrel that one point. it had been lower in the middle of the day, and all that just tons of headlines, nobody knew that this agreement was coming until late in the day. you can see it really take off after 2:00. earlier in the day, people