tv Whatd You Miss Bloomberg November 30, 2016 3:30pm-5:01pm EST
official. sarah palin has reportedly been in talks with trump's team. spoke earlier at trump tower in new york. >> i have already spoken to sessions. courtney: he has been at its current posts since 2009. the pilot of a plane with 77 people aboard told air traffic control -- controller he run out in a few moments and according to their traffic power, a pilot in the -- total electrical failure and lack of fuel. from anght miles
airport. only six people survived a crash. the un security council voted to tighten sanctions in response to the sixth-largest nuclear test in december. diplomats calling it a significant step forward. currencyions target revenues by placing a cap on coal exports cutting them by at least 62%. global news way four hours a day powered by.200 journal -- journalists and analysts. ♪ live from bloomberg world headquarters in new york, i am scarlet fu. joe: 30 minutes from trading.
the question is, what did you miss? crude oil trading the highest and nine months after opec oil's, the cartel's first output in eight years. in hollywood, and expected to be named donald trump's treasury secretary, without any government experience. supermarkets are facing what could be called a price war. .e dig into food deflation the numbers don't lie. let's get it started as we had close. the abigail doolittle is standing by. abigail: mixed trading heading to the close. still on pace for a record close.
>> surprisingly, what is dragging on the nasdaq, what would be in the deep decline are shares,the technology facebook, amazon, alphabet. comments,re cautious saying there is significant risk plaguing facebook. only trevor going forward is user growth. he has taken down his estimate in that could be dragging on other internet shares. something else that could be at play because oil is the big story today, the big rally you were just talking about. we take a look at 5201. we may be looking at a sector rotation. reaching out to oppenheimer, he agrees there is a sector rotation.
doing well in orange. this is a sector rotation into energy. we do see a little of a decline. defensive shares, utility shares their in blue. it is pretty interesting there. stocks, onenergy part of the energy complex outperforming in a huge way by the u.s. shale reducers including continental resources and petroleum. earlier told us these are two of his favorite names. he really likes continental resources for the fact the company has not hedged in 2017 cell of oil does rise, it will flow right through the bottom line for the company. he did meet with management recently and out of those meetings, he believes they could report in the next quarterly 20ort that their wells are percent better than what investors are thinking now. perhaps an upside to numbers there. scarlet: thank you so much, abigail doolittle.
joe: president-elect donald trump said today he plans to nominate foreman -- former goldman sachs partner as the next u.s. treasury secretary. he said his main focus would be tax reform. financial markets -- our next guest says some of those reforms could hit investors in unexpected ways. a bloomberg view columnist and portfolio manager, he joins us from atlanta. has been election, it a party in u.s. financial markets. everyone is thinking growth and tax cuts, regulatory rollbacks, all good, finance is back. what might they be missing? >> to your point about tax reform, a big thing people have been talking about his potential of repatriating overseas cash and the windfall could be. . any money that comes over immediately gets taxed. $100 billion tax before corporate america, if you think of it that way, it could be a
big liquidity drain. scarlet: do we have historical examples? under george w. bush there was as well, overseas. does that result in what you are forecasting? >> it was 2004 and we had a lot of volatility. i have seen it was not that meaningful impact. joe: what about the bigger picture? trump making a big deal. part of the reason trump one is because he did shockingly well in these states with republican have not done well in a while. the carrier plan which will keep some jobs in indiana. is there any prospect in your view that he could change the trajectory of your view in the economy these days? oneveryone is so focused trade and overseas places, but the american south has been a big winner as well. wall, i-65,e
nothing is preventing carrier from a few states out. scarlet: the big issue is demographics, the age of the workforce whether it is wisconsin or ohio, and less about globalization, china, mexico, stealing jobs. >> right. if you are thinking about employment needs and you see a shrinking population, you have got to be worried. joe: do you think there is any hope for a revival or should the government not think about that and the future of america is in the south and the big cities in the warmer areas and we would as muchigate the pain as possible in a state like wisconsin or minnesota? >> it looks like a traditional tax giveaway to keep production
in the states. that can work for a while. the question is just from the standpoint of trump's's republican party, will georgia and florida and texas and these other republican states be happy if trump gives away, potentially starting the southern states. you may see a north versus south production war. scarlet: there is a role universities could play here. wisconsin, ohio state, to get people in those states. the graduates who are successful in the believing those states, whether it is the west coast, the east coast, whether it is south, rather than building up some of their expertise in their home states. you saw the urban areas and veryollege campus as well, democrat. the midsize postindustrial cities were very republican. even within the state, the question is even if madison can thrive, what does that mean for the rest of the state? it does not seem like they can do anything there. fascinatingthe
trends in u.s. politics is hillary clinton did decent in and in texas. though she could not flip over those states and she did very poorly in the upper midwest. democrats banking on the fact that may be the south could turn blue in a few cycles. what are the key drivers of the trend? you have a great perspective on that. in theh is changing racial composition and the professionalization, more of the sort of new companies building, what are the different factors going on here? >> something i was talking about a couple of years ago, if you look at between 2004 and 2012, you have borders states whether it is west virginia or indiana or places like that, the world right started voting like southern whites. you see a southern white voting path moving north. the things i thought would eventually happen not this year but in the future is that you would eventually get what trump did in the rural midwest. he taught -- turned minnesota
wisconsin and minnesota into georgia. who will be that candidate who can get suburban atlanta, houston, phoenix, to vote like suburban chicago and boston and philadelphia? that will happen but how? doing well,anta is georgia is doing better. what can states like ohio and wisconsin learn? what are the best practices they can pick up and implement in ohio and wisconsin outside of the big cities? >> ironically what got the new south going was its recruitment sort of mentality and trying to bring in people from the north. one thing that started that off, the orange bowl in florida and the rose bowl in california were ways to get well-educated midwesterners. tonically, trump has turned putting up walls and restricting trade immigration and recruitment. the midwest needs to take on the
openness and inclusiveness attitude to get people to appreciate it for what it has to offer. with colleges, the low cost of living, plentiful water. it needs to adopt the practices the south did 50 or 60 years ago. take a long time but it will be interesting to watch them play out. bloomberg view portfolio -- thank you for joining us. scarlet: next up, what to do next with these two mortgage financiers. this is bloomberg. ♪
scarlet: fannie mae and freddie mac put under control during the crisis. stephen miniature and wants to set them free. the stocks have in -- since donald trump's victory. 5078, a normalized chart of fannie and freddie. it starts at 100. if you go back to the end of the year, you can see they dipped and lost 50% of the value sister anyway before recovering and really hire, right after the election. today, being joe: donald trump's pick. the bet --joe: the bet is if they could go fully privatized, it is like a call option. scarlet: absolutely. john paulson, a donald trump
advisor and supporter has a big that. better offey privatized and what would that mean for the overall economy? managing partner at graham fisher and head of research at the bonn agency weighed in earlier today on bloomberg tv. >> i heard a very different turn. fannie and freddie and government ownership since 2008. we have seen somewhat radical, ideologically driven proposals put forward in washington for the past eight years. none of them have focused on protecting the taxpayer. the government is still control leavinge way they do, the taxpayer fully exposed especially because they have no -- i heard that someone who actually lived on the desk and has a greater understanding for under a president who is a believer in making things happen and deals and not living the perfect being the enemy of the good, saying, it is time to let go of ideology and move
toward time at his appeared a deal to be done for the benefit of the taxpayer, let's get it done. think the deal is, obviously, we do not know what it is. it is either one of two things. fully private enterprises, which i do not think is realistic. that is what we saw jeff propose . there are problems for a whole host of reasons. social problems in terms of consumer access to credit and secondary mortgage markets. it also has other problems. i think we're leaning towards what i have been expecting. a rational outcome would be utility. >> but this has never gained any traction. >> no. if you think about it, your electric and water and gas and sewer company -- >> we are not saying it is a good idea. >> they are private companies, not government controls. >> they can go into bankruptcy. you are saying it would be a government backstop. >> no. i'm saying you would have adequate capital, 4.5 times but
has ever been taken in a crisis. so that the markets understand there is no need for an there is no government support. >> would they be able to fail? >> of course. that is part of the other issue. >> but no government rescues in the future. >> if you are over capitalized to the tune of four times the worst historic rate, >> never say never. cannot plan for never appeared you can plan for doing the best you can to protect the taxpayer, which is not what has been happening. you can do what you can to make sure there is a market, the secondary mortgage market. mark -- model is the model. then what you do about the to be announced market? if you have enough capital that you do not have to worry about it, that is more of a messaging thing. you need a small government line that is funded and paid for and not supported by the government, that is behind multiple --
>> let's agree this is a good idea. what lawmaker has ever said they would support this idea? josh: that comes to the next thing which is, again, we have had ideology driving both extremes of these perspectives. i think ideology is out the window. a guy would frankly say you are for failedth of them attempts over the past six or eight years. we are going to see a pragmatic him do we think they really want to pick a fight with the new incoming president with much higher priority issues? >> but be serious. this is one of the most problematic discussions on capitol hill. housing draws an enormous crowd. when you can already see declining volumes texture messing around with the gst -- >> it is the other way around.
>> no. excuse me. it is a recipe for having everyone in the housing out -- >> functionally what i'm suggesting would happen, they will operate much in the same way they do today. the rest of the market has failed to operate at all. josh.t was chris and scarlet: time now for a look at some of the biggest is the story in the news right now. a victory for president elect donald trump to campaign on the promise to bring back factory jobs for america. carrier agreed to keep about 1000 jobs. the third biggest brokerage is prepping to go public according to people with direct knowledge of the matter. also could file by the second half of next year. xp is backed by private equity firm general atlantic which could sell its stake to the offering. xp is set to -- high net worth investors. $20 billion is what microsoft
expect to have in annualized revenue. the company ceo spoke today at the shareholders meeting that the business already hit $13 billion in the last quarter. touted the levels of artificial intelligence built into new machines. its streaminging content ambitions to a galaxy far, far away. they have joined forces with disney and people magazine in an exclusive live stream of the up coming feature film, "rogue one: a star wars story." on movie hits u.s. theaters december 16. that is your update. up next, harold hamm, the wealthiest energy billionaire in became $3 in the u.s. million richer.
scarlet: parallels between the u.s. equity market following the election of donald trump in japan following the election of shinzo abe in 2012. this was an observation made by goldman sachs. this chart was put together. what happened was back into the -- december of 2012, about 6% in alexionfollowing babe's -- abe's election.
if you come back to this white line over here, it shows the s&p 500 right now since donald trump has his election. what is interesting of course is the gains have been more modest. david says he does not see u.s. equities performing as well. he is calling for the s&p 500 to rally to 2400, just 9% over the next four months. it stalls out according to goldman sachs. 2017 around 2100. not a huge gain. ,he reason for this interest-rate's that will limit earnings per share and multiple expansions. a lot to dig through here. another thing, we saw a
significant weakening of the yen. the dollar is incredibly strong. boostw that abe -- to inflation. arguably, some of the people want tighter policy but i like the comparison. i want to look at the effective ate trump has had to a look treasury yield, the worst months in the long time. we see the last time yields on u.s. treasuries, that was in 2013, the taper tantrum when the fed first started giving hints that it would wind down its expansion of the balance sheet here the biggest jump if we could go to the end, this is the biggest jump in 10 years since then. the trump tantrum. i made it up. i probably did not even make it up. sort of interesting. treasuries overall are having their worst month since 2009.
we seeing a is are major rizzi -- regime change with the significantly higher yield? does this change on monetary policy and fiscal policy? of course, yields have been going down for a few decades. or this is like the taper tantrum, but it is kind of like a big question right now. make ank the people who lot of money in the future are the people who get the question right because in addition to treasuries, a lot of other asset classes, commodities, currencies, all take their cues from this question. so you better get it right. yields seem to have topped out for now. although a back to the levels seen -- >> exactly. we are not even at the levels we have seen a year ago. the severity of the move has people wondering. scarlet: rate of change. the market close is next. take a look at the major averages. the s&p is now negative, down
scarlet: we are moments away from the closing bell. what'd you miss? month --ping to one crude jumping to one-month highs . i am scarlet fu. joe: i'm joe weisenthal. i want to welcome the viewers tuning in live on twitter. you can watch closing bell coverage on twitter every day from 4:00 to 5:00 eastern. scarlet: we begin with our market minute. u.s. stocks closing mixed with the s&p closing in the red just barely off by five points after the opec decision. energy was the best performer in the s&p 500. best day since february. joe: a pretty remarkable split, we solve on proxies doing well, oil the story of the day, a massive surge. scarlet: let's take a look at the sector breakdown. youou look at the bloomberg
have energy stocks, financial stocks and everyone else. energy up by 4.8 percent on the day. if we drill into it you can see all green here. looking further into energy the only sector that had a loss was refining and marketing. they do not do as well when -- when oilices prices rise because they lose their margin. green across-the-board. 100% in terms of the members of that group gaining. a big day for these energy names. in the s&prformers 500, energy companies dominate. marathon oil 21%. transocean 17% gain. murphy oil, ditto. it was a blockbuster day for energy. joe: those are some huge moves pre-government bond markets, the we just10 year yields, talked about 10 year yields
around the highest level in a year. two year yields higher. they got more good data. everythingeels like is coming together for higher rates. you definitely want to keep your eye out on that. you can see how they have just taken off since the election earlier in the month. they were at 1.7 percent. pretty impressive month. scarlet: pretty remarkable. you have the move up in the dollar. this is the bloomberg dollar index drifting higher. before things giving it surpassed the high we saw in january when the fed was rate indexes. investors are pricing in a faster pace of tightening in 2017. opec production cut is boosting oil link to currencies. we are talking but the colombian peso, and the canadian dollar.
the crown and the cad were the the crown and the cad were the only to gain against the dollar. they are actually being held back, being restrained by the strength in the dollar. he would have gained more if it were not for the stronger dollar. oil.commodity is all about -- the commodities are all about oil. that is all you need to see. that is a gigantic move. happens onlymoves a few times in the last 10 years. that is a mammoth move on oil. let's look at the one month chart. you can see the different swings in the middle of the month. it looks like oil had gone down to 43. then some optimism, then a couple of days ago it was below 46. then today's surge. scarlet: those are today's market minutes. joe: we have gotten reaction all day about the opec deal. there are two voices we have
heard from today regarding what happened. >> we expected a deal. one of the key reasons is the economics, not the politics, the economics were compelling. a had a rebalance market in the line of sight. had a rebalanced market in the line of sight. they had to pull production forward. the main reason is inventory normalization, not price. >> for us to our long-term investors, we look at the people theyring together and say are fighting against history. history has spoken and technology. the cost of producing crude due to fracking technology has dramatically changed the marginal economics of oil. it is not going back to where it was. at opec i want to look supply versus prices. common inside the bloomberg. packellow line is opec out -- output.
the purple line is brent crude, output.rnational prices moved together. there is a ramp up before the financial prices, then the plunge in 2009. there is the commodity boom and then bust. what happened since then? shifted, saudi arabia unexpectedly. we will keep pumping for oil. we are going to go after market share as opposed to price. it was to drive u.s. shale producers out of business. joe: that is a great chart. that gap is massive. scarlet: for more on opec's historic deal, i want to bring in my guests. david, let me start with you. when we say the deal has gotten done, there are a couple of hiccups that have to be ironed out. david: sure. the first, are they going to comply with the quotas? some has been a history of
questionable fudging and cheating on the quotas. if you look at russia there has been a long history of promising or suggesting they would cut and then not themselves cutting. the question is will it actually happened? joe: philip, let's say it does happen. this agreement is put in place. countries all have different interests. are differentsts from iran. how do think that is going to play out? will there be a time where they can find a strategy on which they are all aligned? phillip: david was right on where he said history was against them. has to beminister called a $56 billion man. added $56entially
billion by talking. it has been clear for a long time that saudi should not agree to to do anything unless they cut three barrels or four barrels for every barrel they cut, and that is what they did. at the same time what everybody misses, they talk about production. saudi arabia is sitting on 300 million barrels of oil and then said -- inventory and just they have made more available to asian customers. they may actually boost sales because they are in a battle for market share with russia. if russia complies than saudi arabia will comply. stay high for a while. history is ultimately against to think about other countries, this is every man for himself. it has been for a long time. as an economist i have studied these cartels.
they do not work. scarlet: i like the way you put that. every man for himself. david, when saudi arabia went ahead with market share first strategy, that was a pump out will policy. has that been abandoned or suspended temporarily? david: it is hard to tell. until we see the data on what is being produced and exported, the proof is in the pudding. scarlet: this is another way of asking the question. did it work when saudi arabia follow that strategy? david: they got part of the way there. u.s. production did fall. but not to the extent that it cleaned up a -- or stopped global supply. that did not keep the price higher. that did not eventually lead to a jump in production. there is still a cap you can see on how prices -- how high prices
can go before more production comes online. joe: what do you see as the u.s. production? phillip: u.s. oil has gotten an early christmas present. this is the permanent christmas present if president trump follows through with his tax policies which will impose 20% on imported prices. u.s. producers can keep cranking ahead, given the increased reserves, the u.s. will keep increasing at a faster and faster rate. it was already starting to recover. it is going to recover even more. other non-opec countries such as canada will suffer. canada especially. with the border tax adjustment that donald trump and the republicans are going to repose, they will face a 20% fee bringing their oil in here. canada will suffer. opecr as the other
countries, it is going to depend on what happens to the global economy. you talked earlier on about the strength of the dollar and why federal prices currencies were not up against the dollar, a lot of the emerging market countries are going to suffer the way they did in 1989, 1999, 1998 with the asian debt crisis. that is not at all clear in the long run it is going to work out well for anybody except for the american producers. with this u.s. production increase that we can expect, won't that hurt opec in the end? that allows the u.s. producers to continue drilling and pumping. doesn't opec should itself in the foot by bringing in more u.s. reducers? phillip: absolutely. abe lincoln had the best line. you can full all of the people some of the time, some of the
december 15. richard blumenthal tells bloom it -- bloomberg you once a special counsel for donald trump's business conflicts. >> he needs to sell or divest, he needs to do it to an independent, disinterested party, not to his children. so long as he has an interest, and we know as parents if our children have assets, we have an interest. >> critics say he should put his interests in a blind trust. planned parenthood and its allies filed lawsuits in north carolina, missouri, and alaska taking on laws they viewed as unconstitutional. limits on abortion, the restrictions being challenged in missouri are similar to those supreme court recently struck down in texas. the require abortion clinics to meet standards for surgical centers and mandates that doctors have admitting privileges to nearby hospitals. a saudi prince is issuing a public call for women to be
allowed to drive in the conservative kingdom. stop the debate, time for women to drive. saudi arabia is the only country in the world that does not allow women to drive. castro's ashes have begun a four-day journey across the island nation to their final resting place. crowds waved flags and chanted fidel as the convoy passed by. it is similar to a victory tour he took in 1959. courtney collins, this is bloomberg. scarlet: what'd you miss? wall street wins again as donald trump chooses more bankers and billionaires to fill his cabinet. he picked steven mnuchin to be treasury secretary and wilbur ross to lead the commerce
department. he also met with gary cohen trump tower. let's start with you, if personnel is policy, what do his picks tell us? us he is noting actually draining the swamp. we have picks in the, wilbur ross and steven mnuchin announced yesterday, we have a lot of other goldman sachs ists, and stephen bannon. joe: explain these decisions my political perspective. it doesn't look that great for him politically. once you would think that his supporters who elected him out
of this populist theory against the government would be concerned about a bunch of wall street insiders showing up in washington to run things. i think he is going to get a leash on this stuff. i think the policies are going to matter more than the people he puts in position of power. cohen ares and gary going to have to execute donald trump's policies. if he sticks to the populist policies he campaigned on he will probably get a pass from his supporters. scarlet: that was my next question. formed arely his policies? is it going to be a case of steven mnuchin having a lot of , or is he going to follow a
instruction already laid out? >> he is echoing what donald trump said as a candidate. he wants to see and he thinks he can bring gdp to 3-4% annualized. he sees jobs increasing. infrastructure investment and tax reform helping this agenda. he is accor what donald trump said. -- he is at going what donald trump said. joe: you say donald trump will get a pass if he delivers on populist policies. the appeal was the populist a static and that he was going to grind the elite's face in the dirt and just when and that he n.uld -- and just wi was was part of what it pregnant necessarily proposals but that he is not on the side of wall street. that was part of what it was.
not necessarily proposals but that he was not on the side of wall street. >> this carrier thing is an not necessarilyexample of wheres delivering for his supporters. win is goldthis for him. he is doing what he described -- what you described, taking their face and rubbing them in the dirt. he campaigned to keep this plant open. he is not even president yet and he has managed to do it. there is a lot of criticism we can talk about as to whether this is sound economic policy to go around the country arguing with plant owners to try to save jobs but he has already checked off one of his campaign promises. scarlet: and he's what a take a victory lap tomorrow, he is supposed to go to indianapolis tomorrow with mike pence to tell what he has accomplished. my question to you on steven
mnuchin and wilbur ross, will they go through the confirmation process smoothly? are they going to be hurdles? >> there are definitely going to be obstacles when it comes to steven mnuchin. if you have seen the frosty response we have gotten from democrats, there is a majority in congress, that a slim majority in the senate for republicans. a can't afford to lose too many republicans and the democrats get to have their say. the number one issue they will look at is going to be mr. ofhin's stewardship indymac, a failed mortgage lender that allowed him to profit on the subprime mortgage crisis in 2008 and 2009. there will be questions around that. to both of you, we are talking about some of these nominations that seem good for wall street, don't necessarily seem popular. what about on the trade side.
how do we know -- what we know about how they would pursue trade deals? like theyit sounds want to work together, commerce and treasury, both departments came on to a lot of shows together. their nominations came together. a were talking as if they have onbled together a few ideas trade, especially on china come a whether they will label them a currency manipulator or not. but he also specified he will work closely with the commerce department, with wilbur ross on that issue. alex?t: >> it will be interesting to see who donald trump appoints as trade representative. there are not a lot of republicans who subscribe to his protectionist trade theories. here is where he could reach
across the aisle and put it a protectionist democrat. deals negotiate trade with those who were part of the transpacific partnership, which he is not going to allow to go into effect. scarlet: or maybe that is a position for mitt romney. thank you for so much. we appreciate you joining us. coming up next, investors cannot seem to get enough of the greenback these days. we look at the bond market and why that makes it clear the dollar has more room to go. this is bloomberg. ♪
let's take a dive into the bloomberg. big dominant, the theme has been a stronger dollar and a selloff in treasuries. everything is being repriced off of that. line.llar is the white it keeps strengthening. the blue line is the spread between u.s. treasury yields and the global yields. it is the highest since 2007. yep to go to 2007 for the blue line to be higher. -- you have to go to 2007 for the blue line to be higher. the two pretty much reinforce each other. it is hard to see what is going to break this relationship in the near term. it is hard to know anything. and there you could imagine a large spending boom or money could weaken the dollar, you could still have that long and which is based on inflation, but as long as it looks as if the
fed is going to tighten. and we don't get any details on the spending by the donald trump administration which will not be fourth quarter until 2017 -- forthcoming until 2017. joe: as we get spending it is hard to get that money out the door sometimes. i'm looking at good economic data that came out yesterday from the conference board consumer sentiment. white line is the labor differential. the gap between people who see the job market, the jobs being plentiful and jobs being hard to get. more people see jobs been plentiful the higher. the job market is good compared to where it has been. you can see the blue line is the perfect mirror, that is the unemployment rate. that has been going down. with the labor differential line
at the highest since the crisis that would suggest there is more room for the unemployment rate to drop. we're at 4.9%. that may be full employment. maybe it could go to 4.5%. already see in 2016 the blue line has stalled out. joe: it has. the second half it has stalled out. maybe it is coming back. chartt: we have another to show you. with political upheaval from braggs it to the election -- from the brexit to the election, the most volatile has been the south african -- that is the white line, it has done better. that has been a negative return therefore the period. more about emerging markets when we come back.
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let's get to first word news. is underin consideration for the position of secretary of veterans affairs. that is according to a report from abc news citing a close palin aide and top transition official. she has been in talks with donald trump's team. nancy pelosi survived a challenge from tim ryan of ohio to remain the top democrat in the u.s. house. toaide says the vote was 134 63. they say nancy pelosi is still the right person for the party. jill stein is requesting a full
hand recount of michigan's presidential vote. she has requested recounts in pennsylvania and wisconsin. bothd trump narrowly won states. it is unlikely the outcome will be reversed. the chartered plane with 77 people aboard including a soccer air-traffic control he had run out of fuel. audio reveals the pilot requested permission to land due to a total electric failure. only a few people survive. view and security council -- thcouncil unanimous morning approved the sanctions resolution today with depomed's calling it a significant step forward. the new sanctions target north korea's coal export.
global news 20 for hours a day powered by 2600 journalists and analysts in 120 countries. i'm courtney collins. this is bloomberg. scarlet: let's get a recap of today's market action. the s&p 500 dipping into the red by the close. the dow little changed, up two points. tech was a laggard here. the big winners were those energy producers after opec agreed to a production cut for the first time. joe: in addition to the tech selloff which slammed the nasdaq, bond proxies being ahead, health care utilities, not doing well. scarlet: whether it is equities or treasuries. a quick look at one stock moving in late trading, these are shares of guess tumbling. the missed -- the retailer missed earnings estimates.
the ceo says the retail environment in america remains challenging. joe: what'd you miss? marketse in emerging may turn into more of a panic. our next guest says despite this emerging market external balances are much healthier. thank you is pablo, for coming on. worst intro noted, the month for emerging markets. how much of the story is about simply what is going on in u.s. rates, and how much are other factors of perceptions of trade? pablo: both things are coming into play. there has been a duration shock that affects all markets. it is not a question of emerging
markets. it happens across the physical space. then we have this, generating money back into the u.s., the dollar's strength. that is away from the e.m. and back into the u.s. scarlet: is there any way a stronger dollar may be better for the e.m. in any way? positive iscan be what may bring this on. if the stronger dollar is brought by infrastructure spending than you might see it pick up in commodity prices. that could be good for e.m. if it is because the u.s. economy becomes more protectionist, that is not good for em. you need to see what is behind that strong dollar. joe: how challenging is it for emerging markets, people who oh
who oh money in emerging markets. how much tension will there be and do they have the balances to a stain that? pablo: what is the right asset location between local currency. joe: that's a better question. pablo: i think the answer is that you have seen emerging markets getting ahead in this environment. you have seen duration affecting spreads in hard and local currencies. you need to make a call on the dollar. joe: that is what it is about remaking a call on the dollar. in thewhere are we correction and duration? we think part of the story of duration was the repricing of expectations in the u.s. that were low. the u.s. election has coordinated a repricing.
that is 85, 90% done. the question is about term premiums. you need to think about what is going to have a way from -- what is going to happen away from the u.s.? to they going to continue have these qe programs in place? i think that is the next stop for this story, looking in europe. joe: all strategists around the world, whether they look at e.m., they have to make a call right now on the long end of the u.s. rates. it is kind of the big story. that is the good part of the story. the other call is the dispersion story. when you look at the u.s. potential, are we going to have a playbook that is like the campaign statements or is it going to be quite different? there are a lot of questions about how much of the campaign will be applied.
that gives you a different picture between commodity supporters, exporting manufacturers, what is going to happen with mexico, china. it is the dispersion what you try to make a call. was offart of the rally of emerging markets per you could buy anything and you would make money. going forward that part of the story is gone. now you manage selection. you need to be more active in which countries you are going to igh. weigh or under we those that had long duration, even prior to the election, they were having these carry it away by the to ration story. scarlet: before you could be passive because they were all going up. now you have to be more selective looking for winners and losers.
inen summit people invest emerging markets what factors should people be place in importance on? when you look at active managers in a marching markets versus -- the 25% of managers beat product. opens the opposite in the space. going fall words, active managers will do better than passive the strategists. duration will be eating returns on the index. you will have to be moving your credits around, doing your relative value, to really add to benchmarks. selective, being more active, and may be having an active hedge on duration will be the way to make returns into 2017. joe: do you see signs of dispersion?
or is everything being flushed out? pablo: we are seeing some dispersion post opec meeting with oil credits, they have been positive. a lot of money came into emerging markets post-brexit pre-election. that money left, to some extent. not all. we were saying they were selling in the same indiscriminate matter that they bought going in. the story is going to change and returns inha, making the direction of the market. scarlet: all right. you are staying with us. next, brazil cutting rates or a second straight meeting. we cut into the -- we dip into the political noise of the country. this is bloomberg. ♪
scarlet: what'd you miss? brazil cutting its benchmark rate to 13 point 25%. -- 13.25%. we are back with pablo, with blackrock's emerging-market debt team. now you have the uncertainty generated by the u.s. election. does it throw him off course? pablo: i don't think at all. brazil is one of the most idiosyncratic stories in emergent markets. it is domestically driven turn around. you had a significant amount of issues with politics earlier this year and last year.
this appears tothis appears to t resolved in the sense that congress is functioning again with its goal to tackle some problems it is happening -- it is having. is what investors were expecting. we have a bill in the senate to cap increase of spending. that starts to shape the story better. the central bank cut rates. to cut's so far this year -- 2 cups this yea -- two cuts this year. cutne is forcing them to rates. they are using this opportunity to rein in inflation. joe: what you need to see in brazil to suggest they are still on the path? the path of reform, fiscal or getting rid of corruption, or trying to reduce it, what do you need to see to know they are not stalled out? pablo: first is getting fiscal under control.
it is a complicated political system. then social security reform is the second thing investors will be looking to see. that is something more. first quarter 2017. those things can be part of changes in brazil. joe: how significant are the actual economic effects of these reforms, and how important is the signaling that the ability to get these reforms done is a signal of operating government? pablo: we needed to see an operating government. what we saw before was not really working in terms of congress. now we have something people working together. cross party. that is very important. now the true effects are important. the spending gap has a more immediate effect. the fiscal path of brazil was taken was more the gdp.
we needed to have that under control. that brings lower spread, more confidence, investment in the economy. you get the economy going. has strong signals that brings more market confidence. then you need to see the proof. show me the money, as they say. scarlet: so much of brazil's fate rests on china. i want to switch gears to china. the big concern here with china is the capital outflows. those are the red flows. they have been consistent going back to mid-2014. the white line is dollar you uan. -- y thehat extent does accusations from the donald trump administration main this trend is going to continue -- mean this is going to continue?
pablo: i don't think the outflows will have anything to do with it. what happens with the outflows in china, we will have significant liquidity being created domestically. like in any other emerging markets investors want to have some investments abroad. the other part of the story was the unwinding of corporations in ,hina that borrow abroad repaying those liabilities. a good flow about close have taking care of stock of liability. you don't have that much corporate debt. scarlet: how much? is already0 5% taking care of. that is winding down. the other part of the story with the currency is that chinese exports are not -- of late. that brings a sense of weakness in the economy. the last point, interest rates.
you were showing a chart earlier before interest rates in the u.s. and the rest of the world. it is important for chinese favors. you will have this outgoing flow of money. going to continue to see that part of the story being there. aboute can't talk emerging markets in the postelection world without talking about mexico. people hammered the pay so, then it got -- hammered the peso. what are the prospects for mexico? peso, how you value the you don't know whether nafta is going to be there 12 months from here. what tariffs are going to be imposed. we need to know
what would work. policy decision is keeping investors on the sidelines. if you look at whether -- where mexico is valued compared to prior to the election, 15-20% undervalued. is that the economy we are going to have going forward? i don't know. that doesn't get clear. joe: want to be too late by the time it is clear? if it is undervalued, can you afford to wait until all of the policies are clear? get?: what do we need to nominations. today, commerce eric terry -- commerce secretary is not pro-free trade. that is an indication uncertainty is going to linger for a little bit more. with all the news out there, investors will react. we are working with these uncertainties. we are months away from the
which is the white line. that is the orange line. it has been a drag on that. driving this underperformance? slowing sales growth. food depletion pressures grocery industry to offer heavy discounts that way on margins and sales. throughout this kroger has managed to post 51 straight quarters of positive sales growth, even as it has decelerated. have fallen for 11 straight months. this is the longest streak since 1960 which had a 14 month streak. the slide is hitting kroger harder than others because the company is america's biggest -- biggest seller of groceries after walmart. kroger is far behind walmart but ahead of albertson, costco and sam's club. kroger may get larger at the latest investor meeting.
inre is 100 billion dollars potential revenue from companies that are characterized as projects. the company has been adding debt to fund acquisitions per you can see that they are pretty including services that include online orders -- that pick up online orders and delivered them to customers. of thegains can be part recipe for kroger to re-accelerate sales and stabilize its stock price is pretty we will be looking for these things on thursday in the u.s. when they release their information. joe: for more let's bring in craig, who covers the industry for bloomberg. how are they dealing with this? we have seen food at home prices drop a lot. do grocery stores have any strategy? craig: it is tricky. this is a staggering streak of food depletion. the long-distance 2009.
people are saying this is unprecedented outside of a recession. the longest streak since 1960. it has prompted a price war. elephant inhe big the room. when they move in a certain direction it affects everybody else. they are cutting prices, taking advantage of the depletion. that is weighing on kroger. kroger has to respond. joe: they are finding their stride, was there a time where they had stumbled? we think of them over the last several years of this huge -- as this huge player. craig: they have been getting bigger and bigger. they were criticized as not having produced that was a very nice. they watched whole foods and kroger and walmart have caught up or you get plenty of organic have that walmart -- caught up. you can get plenty of organic stuff out walmart. that is why you are seeing those
declining sales. strategy,oing back to i wonder if kroger can offer anything else that is higher-margin rather than ingredients for dinners are we talking about prepared foods, organic, deliveries, add-on value services? craig: the big thing is click and collect. what that is, you go on the web or your phone, make the order, it is ready at the store. you drive in and pick it up. a lot of people say that that is more convenient. even better than delivery. invested heavily in that. they have y'all at a lot of their stores. program is a big giant in this category. ofletion has put a lot pressure on them. ofdeflation has put a lot pressure on them. in some other breaking news, rockwell collins is under --ssure from star wars value
i'm john heilemann. mark: with all due respect to stephen the new gin, your name i.d. names work. is is expected to fix stephen munchin. >> former goldman sachs executive steven munichin. >> led trump's finance operations during the presidential campaign. >> among men, stephen munchkin as treasury secretary. mark: we have got much much