tv Whatd You Miss Bloomberg January 19, 2016 4:00pm-5:01pm EST
[applause] bell ringing] barely the nasdaq in the red. scarlet: the question is "what'd you miss?" forget about a rate hike in march, one analyst says they are looking for a rate cut instead. scarlet: and we show you the one chart when ceo matters when it comes to china. on a ran andhart oil that will scare the bulls. scarlet: global stocks rallied overnight and it seemed like the u.s. would build off of that momentum. we started off with momentum, but they were unable to hold on. at the s&pu look minis versus oil prices, as oil prices started to give up some of those gains and rollover a bit, energy stocks within the
s&p closed at their lowest level since 2010 and could not find a new catalyst for oil. but we knew that already. alix: just bearish sentiment unable to be shaken. scarlet: treasuries are down moderately, says not like we are seeing things going down across the board. alix: we have done some technical damage over the past few weeks. so well extended below that line that you could call it a triple bottom at the end of the day. the question is is that a real thing? scarlet: one analyst was saying it's about an 8% red between the
s&p 500 and its 50 day moving average. something else we are focused on his twitter, falling to a new low, rounding off its worst today decline in more than a year. twitter has been having service outages as well. isave been getting something technically wrong error page. its first day of trading just below $45 and now it is down, down, down. alix: so just the idea that stocks are giving up gains and reversing the momentum. now we are going to look at the gains and dig into the bloomberg terminal. we've talked about all the bad things happening in the market but that's not being reflected here. highan see it reached a
42016, but it has fallen 28% since then. if you are freaking out about the market, you would not expect the fear barometer to be falling. scarlet: this has nothing to do with the vix. alix: totally different index, just a different way of measuring fear. scarlet: what caught me today was the comments saying it's not time to raise the boe rates. >> i said the decision as to when to start raising interest rate would likely come into sharper relief around the turn of this year. that decision proves straightforward. now is not yet the time to raise interest rates. scarlet: you want to look at the reaction in the british pound.
following the decision that accelerated, you have the strength in selling. he comments coming in across the wire and you see the immediate leg lower that extended for the next three hours. declining against all of its 31 major peers before recouping some of its losses as the u.s. trading day extended. the pound has fallen against the -- allon all of to trade except two trading dates of this year. itscan see the pound is at weakest level all the way back to 2009. fears percolating in the market. --michael is shaoul shaoul.
always a pleasure to have you here. scarlet: we have been looking for a catalyst for this latest risk down -- this latest leg down. is it just oil and china or is there a new wrinkle in these narratives? michael: i think is all about liquidity and oil and china have had an impact on liquidity as has the decision to raise interest rate. really starting in the summertime, global markets and credit markets started to behave as if there was not enough liquidity to meet assistance. if you look at the atlanta shadow funds rate, we have seen a lot of tightening way before they hiked rates. michael: it is huge. withtlanta fed came up this and there's a way of estimating with the effect of
the interest-rate was. minus two and three quarters in 2014. it got back to zero just before they hiked rates. aboutd a tightening of two and three quarters percent, so i think you would expect to see a market reaction over that time. scarlet: we have ibm results coming out -- operating earnings per share of $4.59. when you compare that to the consensus item, it looks to be lighter than the consensus estimate. we want to look at 484 as of the note to compare it to. it is a beat on the bottom line. --t means revenue to come america' new of $10 billion, i am looking at overall revenue numbers, just a hair shy of what
analysts were looking for. it looks like a beat on the online and a slight miss on the top line. alix: we're in the middle of earnings seasons -- earnings season and that tightening in the atlanta fund rate, does that affect michael: people doing business? using easy access to cheap credit are being affected. the further down the scale you go, the more impacted they have been. , not soiple b important, but triple b and below is a good portion of the equity market. the russell 2000 is representative of that kind of credit. moody's this is the estimate and we have seen some kind of rally over the last few months, but we have not seen that since 2013. the taper tantrum was a
move in general interest rates. this time around, corporate yields are going up because corporate conditions are deteriorating. single sector has seen credit yields go up significantly since the summer. can we blame all of this on the fed? is it fed, you just messed everything up? by mid december, there were clear signs that liquidity was at a premium. repo that waserse as high as the low 500 billions and if that is the wave as the fed now increases interest rates, the fed is not a significant drain on liquidity. scarlet: let me break in for a
moment because netflix has just $.10 appearsd -- to be the number, higher than expected because the estimate was for two cents. in terms of streaming numbers, domestic numbers, 1.5 6 million, that is a miss for netflix. of people are focused on his international streaming and that was 4.4 million when analysts were looking for three point 5 million, so that is a better than expected growth rate. is looking for earnings per share of three cents and analyst were looking in the neighborhood of two cents. if you look at netflix shares acting in there after-hours trade, it is a big spike up. so we see netflix rallying, but netflix has been hit hard with omentum names
rolling over. do you think the selloff we saw in the last few weeks continues? michael: i think it does. tend to be big't issues of credit and when they do, they have high credit ratings. but the names do enough damage to the overall index that you see a general liquidation of interests. scarlet: can we go back to the chart of the atlanta federal -- atlanta fed runs rate? you talk about this preemptive tightening. what does that suggest about how much further along in the investment cycle we are then investors realize? think corporate conditions are deteriorating in the way that they did in the fourth quarter of 2000 and this may be the end of the corporate softness cycle. in a time of
substantial deterioration. we don'twe are and know it, what is the potential downside for the market? michael: it is substantial for the parts of the market that feel it most. otherk the danger is sectors are directly impacted. , you see sectors with no direct connection to this problem start to go through their own distress. scarlet: the profit recession will bleed into an industrial recession and bleed into a services recession? michael: i think that is the pathway. alix: when will we see a recession in the u.s.? michael: you have probably already entered that path. the actual economy looks ok. i think it will take quite a while for employment decisions and investment decisions to be
million. three cents in terms of first-quarter earnings per share. will continue to monitor the headlines out of netflix and discuss it further. get to mark crumpton now with first word news this afternoon. mark: some key decisions from the u.s. supreme court today. justices agreed to review president obama's controversial immigration plan. itontroversial opinion said overstepped its authority by allowing deportation of 5 million immigrants. they are also taking up a constitutional challenge to obamacare. the court refused to uphold that arkansas law.
ben carson has canceled his events after three volunteers and one staff member were involved in a van crash in iowa. says the car hit a pack of ice and flipped over. one volunteer is being transported to a trauma center in omaha, nebraska. the other three are at a hospital in iowa. new jersey governor chris christie has vetoed legislation allowing than owners so-called personalized handguns once they become available. seeksto comes as he supporters for his candidacy. as a candidate for state office, he supported the ban on assault weapons, a position at odds with many conservative voters. major league baseball and its fans have agreed to expand online packages for televised games. unbundledffer packages, including single team
packages for next season, a 23% drop from the cheapest version available. in the past, viewers that did not live in their family teams market had to buy access to every single televised mlb game. global news 24 hours a day. back to you. .lix: back with michael shaoul about china gdp today, but you look at something different and that is fx reserve. what is that telling you? michael: does the great impact of china on global markets. what seems to be happening is you can think of these as rainy it isnds and some of voluntary by the state.
these are funds being used directly and some of them are involuntarily. it represents flight by private citizens and corporations out of china. enough to haveig an impact on domestic liquidity. alix: you say there is a path to correlation as well. a reduction of chinese fx reserves by 600 alien dollars, which we have seen, is equivalent to the federal reserve cutting its own holdings of treasuries or agencies. and we see the correlation there with credit conditions. there was not that correlation until almost halfway through. wasael: something else
happening at the same time. the chinese reserves peaked at almost the same time as to e3 was completed. chinese reserves the when qe3 started to be tapered. it's difficult to unpick so the feds stop being an additional injection of liquidity in the chinese are taking away. i think the markets are fairly ambivalent about who is actually buying and who is actually selling. the net effect is aggregate holdings and they have gone down subsntially. a hedge fund manager who in thea lot of money subprime housing market said he's looking for a 50% or more devaluation to preserve the fx reserve. would you see something like that? michael: i think it is highly
unlikely. manyis a medical issue and concerns the chinese would have, they are under no great pressure given that fx reserves are still over $3 trillion. much more likely is they will continue to run down reserves and it will continue to be a source of volatility in global markets. they will try to take it to a basket of currencies which they hope depreciates against dollars. you have to understand china is not in the position other emerging markets have been. it's not the position china was in -- it can afford to run down its reserves and it has a trade balance wide enough that it could start rolling them up again. the concern i would have is the impact that has on global capital markets.
scarlet: is china focusing on the right drivers? should it be focusing on excess supply rather than weakening demand? i think it is something of a mess over there. i don't have a great deal of faith in chinese authorities but almost by accident, they are going to create easier domestic conditions which a portion of the economy will take advantage of. as much as we can understand and believe data like that, it shows resilience in the service sector which should be taking advantage of easier domestic conditions. there are areas of strength where they government is spending its money and areas of weakness that reflect overcapacity. it is a mess rather than a
s, making up for slower domestic gained. joining us is cory johnson. once again, netflix has an outside stock market reaction. which tends to happen and the focus tends to be on subscriber numbers. that shows a reacts hillary of growth. netflix has expanded to where they are going to expand to. now it is about filling those in. that growth into those new markets they announced has reached its ultimate point or near its ultimate point. subscriber growth is increasing in the pace is increasing. is key becauseat content costs are so expensive he had to make that up with subscriber growth. quarter over quarter, streaming is up 8%. just think of the progression.
it is pretty good news for these guys and interestingly, it did not come with a substantially higher marketing expense. these guys are still spending a little more of revenues on marketing but not a lot more than the percentage rate that they have been averaging in the last year or so. scarlet: netflix tends to have big reactions to earnings results. come into the terminal and see how we can graph that. the percentg you change on a day-to-day basis. pay attention to the days when they more move more than three points of standard deviation. cory: that is cool. scarlet: this is a great one. occurredhe moves immediately after earnings reports.
this latest one is the exception. whenwas on january 5 netflix announced its global expansion. options trading for next a gain or drop. cory: i like going inside your bloomberg terminal. wasn't that fun? spentercent revenues on marketing -- netflix used to keep that number down toward 9%. the real question is all about those content costs going for it. they don't even tell you what their future content costs will be. number andrucial those will be the questions in the call. scarlet: they are very stingy with their information about original content. cory johnson, thank you very much. alix: forget about the fed hiking as soon as march.
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i'm scarlet fu. let's get to mark crumpton. mark: austria puzzle prime refugee calls the emergency a bigger threat than economic crisis and says the eu should confront the issue at the same tenacity and used to confront the greek situation. are european governments hardening their stance against accepting refugees after taking in more than one million last year. by thenary data released fbi shows violent crime rose across the country in the first six months of 2015 in comparison to the same time the year before.
the figures show an overall increase of 1.7% in the number of violent crimes reported by local law enforcement including murder, rape, aggravated assault and robbery. burglary and arson crimes dropped in the last six months of the year. several victims suffered minor injuries and were treated in san jose. the triple crown winning or severe -- triple crown winning horse of the year has won an voted world's top horse. american pharoah is retired and studding inin -- kentucky. back to you. recapt: let's get a quick
on how u.s. markets closed. we started off on a strong note building on gains in overseas markets. we could not hang on for most of it in the rally just ran out of team. really was not a thematic move today because the risk assets moved in their own directions. brent crude is higher. it is kind of a mishmash of a day. alix: and it seems like it is a cell any kind of rally. overall, energy stocks closed at their lowest level on the s&p since 2010, so kind of taking it on the chin. that took stocks down and that correlation is also picking up again. scarlet: a rate cut may be
coming sooner than you think. , sree kumar said he expects a reduction of borrowing costs in 2016. guest: the increase in interest rates was ill advised. they should have done it two years ago when the speculative bubble was smaller. i look for a rate cut some time -- in 2016.year 16 is bill joining us now lee. you moved your rate hike estimate rejection to march. what would it take for the fed to reverse course? bill: i think you have to find all of this weakness coming from abroad which has so far been limited to oil and commodities and the manufacturing sector start to spread throughout the economy.
those are the things i would be looking for. this is normalizing rates. the distortions caused by low rates have been severe. all of this market volatility is part of the reason. to fed is really determined normalize rates and if the economy is going to be strong enough to have normalize rates, it is going to do it. the weakness is a surprise but it is contained in the commodity sector. constitutest normalization? we got liftoff in december but what is normalization? bill: guidance from the fed has been through a neutral rate. the only thing you can look at is is the economy tanking because of a lack of credit or credit is too costly?
that means i think things are too low. i don't know where to put it but i need every basis point i can get. one analyst says he sees a risk in the lack of liquidity. : liquidity is a terrible word because it means so many things. there are lots of funds available for investment. the lack of liquidity for transactions, can i get out of it? not if you are one of the more -- i am scared to death normalization will cost us because of the lack of transactions in liquidity. what scares me even more is the flood of investment liquidity looking for some source of investment.
the economy right now is not getting the high returns expected. you: what doesn't make worry is the labor market and that's why you raise your projection for rate hikes for march. you see a lot of slack as we normalize the unemployment rate. can you take us through your projections? bill: what i said here is the invisible slack, which is the lack of hiring, when it does not up with openings, firms are not aggressively going for people. if we were to normalize the pace wehiring, even close to it, could see inflation pop up faster than even the fed expect. if we normalize the rate of hiring, we could see inflation reached normal rate by 2016. the higher rank goes up to the
previous cycle peak. let me go back to inflation for a moment. is it transient or not transient? moved intont have we prolonged range? bill: our commodity specialists is telling us there's an supply response and front and pricing is very low. we are expecting some kind of normalization so we should he timeg 50's and 60's some the next year and a half or so. if that is the case, we do not need the price to go up to stabilize. we just needed to not think. it is transitory. what is your probability
we go through the same hiring cycle and we do see inflation by the end of the year and it is quick? bill: i hold that is a low probability. this feeding into expectations pace of growth we saw last quarter was about 284,000. that is way above what is needed to stabilize above the unemployment rate. scarlet: if you come inside the bloomberg terminal, we have the expectation in this chart tracks the odds of that. it got to greater than 50% and then came down to around 26% last week and is now just above 30%. theare certainly in minority if you believe the fed will raise rates in march. is the bar higher now that we are off the bound? bill: right after september, i
said the fed is way more responsive than it should be in lost its ability as an anchor in the fundamentals. and moreas pop that portly, the bond markets have not shown that kind of volatility. it was really the bond market volatility that was the big push. we have that chart if we could pull that up. you were way different than market expectations for a rate hike. you are still lower than the fed's estimate. if the market has to reprice to where you are or you have to reprice to where the fed is, what kind of volatility does that wind up creating?
bill: i think the fed is way too optimistic. i advance my increase it did not take my december 1 off. it to an half increases. the need to back load a rate increase is less compelling than before only because the stuff that is weak, we know why. it's coming from the exchange rate and oil prices. has a longerket lasting influence and certainly more influence on the fed than any kind of spectral change in gdp or expenditures. they were weak in the areas we expected. where were they strong? the kinds of places where we think the underlying pace of the economy is doing quite well. thee is no question if
income data changes, i will be changing my call. i am as data dependent as the panic first and think later. ofx: we have a lot comparisons of whether this is 2008. is it? bill: nowhere near. this was induced by a leadership crisis in china. we don't know what's going on in china, so markets start to panic and that feeds into the equity markets around the world. what it was last summer, let alone 2008. scarlet: thank you very much. alix: coming up, we look at some of the charts worrying the oil market and they have to do with iran. ♪
scarlet: time for the bloomberg business flash -- shares of netflix climbing in after-hours trading after the company said it added 5.6 million online subscribers last quarter, topping analyst estimates. international growth made up for slower domestic gains. profits declined to $.10 a share, eight cents or than forecast. reduces full-year earnings forecast last october -- eighth 5 -- a favorable tax break aided results. shares are down almost 7% since the beginning of this year and 18% over the last 12 months. shares of twitter battered again today in its worst two-day drop in almost six months.
new record touched a low and and did the day down almost 7%. almost stock closed at $45, its lowest since its first is a publicly traded company. what has the oil market spooked? the return of iranian oil. here are some of the charts scaring the bowls. first, how much does iran have floating in the persian gulf? about 46 million barrels of oil are floating off the coast of iran and barclays says there's another 30 million barrels of oil onshore. at the end of the day, it all comes down to exports. this is difficult data to get and it comes from the country itself. exporting 2.2 million barrels of oil a day and now it
is run one point two or 1.3. iran wants to increase that a day,by 500,000 barrels but you are still well below the peak. you have the oil but where is it going to go? iran exported a lot of oil to europe, about a quarter of all itits oil, so it makes sense would go there and compete with the likes of saudi arabia and iraq. the real battleground is going to be in china. iran spends 42% of its exports to china. room for iran of to gain market share, but they have to compete. how much will it run willing to discount the price of oil to steal the market share away from saudi arabia, russia and iraq? we are going to look at the official selling price -- this yellow line is asia. this is how much less they are
selling it for than dubai crude. price war is iran going to want to get into? goldman made the point that if iran ends up flooding the market and it goes into storage, that's could put pressure on oil and that could push it to $20 a barrel. joining me to discuss more on oil is michael haigh. great to see you. what do you think of goldman's $20 call? michael: you can think about it logically. a lot of this discussion, you think about economic floating storage, how much does it cost to charter a tanker for the year and the vessels that have to bring the oil on and off again -- our calculations suggest you probably need a $13 contango to
make it profitable. if it does go on floating pricee any front month has to drop -- alix: you're looking at teens. michael: you are looking at $29 right now, so probably in the mid-to lower 20's. two putt a silly number out there that $20 would be incentive to put into floating storage. alix: you have a great model looking at what is actually moving oil prices. isn you look at brent, what the driver right now? now, and iran this yesterday, the fundamentals are 60% driving the price of rent. 40% of the movement in the last couple of weeks has come from non-fundamentals. things like risk on, risk off, but mainly worries about china.
so supply and demand don't matter as much? michael: they do, but we have times where almost 100% of that prices deeply fundamental. are sort of an average level of where the macro and dollar do the rest. probably eking up to the low 40's by the end of the year. alix: such a pleasure to have you. this year'sill world economic forum be affected by the recent market volatility? find out from the founder and chairman, klaus schwab. ♪
scarlet: i'm scarlet fu. "what'd you miss?" joe is he missed. he spoke with klaus schwab who said the crash and commodity a crisis thateate will dwarf the refugee crisis and weighed in on global markets. klaus: let's not forget we are moving in cycles. the world has become much more interconnected. vulnerability takes part practically everywhere and in every sector. reinforced it has
the consequences of the industrial revolution. joe: do you think a slowdown could bring down the economy of the u.s. and europe? i think we see a small acceleration of economic growth in the developed world and this acceleration in the emerging world i would say we should not underestimate the consequences of lower commodity notes, oil, we should discount the vulnerability in terms of foreign exchange exposure of some countries. i would be positive that i would see the potential for substantial shocks. fed has commenced a tightening cycle a lot of people think may not be a wise idea or good timing for that. how do you see the feds role in this? are in uncharted
territory. we make a decision and don't know what the consequences are. are living in times of unexpected consequences. whatever position you take, you don't know exactly what will happen so we are not in completely control of what is happening. trusteads to erosion of of people and decision-makers. klaus:w do you see the things play out? i'm concerned about the humanitarian consequences. what company countries in africa depend upon the income from oil exports. imagine one billion inhabitants. imagine they all move north -- it could be the refugee problem add a possibleou
water crisis and so on -- i'm this lowering of commodity prices leads to a substantial social breakdown. joe: speaking of the european refugee crisis, do you feel anyone has a good handle on what to do about it or are leaders lost and poking for a solution? probably have we to redefine the world -- the word refugee to make sure those who are really in need find the necessary protection. we have to look at what we do with those who are economic refugees. i do not have a recipe but we have to protect our european values.