tv Bloomberg Markets Bloomberg August 15, 2016 3:00pm-4:01pm EDT
life from bloomberg world headquarters in new york for the next hour and covering stories out of seattle, washington, and japan. all three u.s. majors in green extends, therel are commodity producers. the campaign to revitalize the stagnant economy, the bank of japan is set to become the top owner of 55 firms in the nikkei by the end of this year. he doubled his buying target last month. itsamazon is known for massive spending on projects. our investors looking the wrong way?
>> we are holding steady with these record levels. you have the dow, the s&p, the nasdaq all their on intraday. things to characterize this recent rally. we've had lower than average volumes. more than 20% below the 30 day average. we've also had small incremental moves in the major averages. also, it has been kind of the streak here. it has been set since this latest rally began back on july 11. and there is low volume as well. take a look at the bloomberg terminal. this goes back to 1990 for the volatility index. this dotted line, 19.8.
mark: clinton hits the campaign trail. clinton: that's assuming he pays any taxes at all. we haven't seen his tax returns. mark: the vice president took on term say he is "totally unqualified to be president of the united states. clinton is up by 30 points. clinton leads trump 50% to 25%. stein has 6%. when ane are killed overcrowded bus veered off of a highway. the bus was taking passengers to the capital city of kathmandu when it went off the road and
rolled 500 feet scattering bodies, luggage. you're trying to curb the influx of people seeking them. it more than 2000 migrants of been prevented from crossing to bulgaria and less than a month. two dozen smugglers have also been caught. they want to continue to wealthier eu states. day.l news 24 hours a back to you. >> central banks have lots of tools at their disposal, but none are more controversial than helicopter money. the theory is if you give extra money to individuals through direct payment or other message -- methods, they will boost the economy by spending it.
and lively discussion about the merits of the concept this morning. >> this is one of the silliest ideas journalists has come up with. sorry, there are no central bankers in the world -- >> it's not true. >> no central banker in the world is talking about it when they asked mario draghi about it , he says we've never talked about it. and they keep asking him. you little reminder that are probably saying this about negative rates in january. here, the look around problem is that the more central bankers say, the less efficient it is.
>> do you agree with us? dr. weinberg is not thrilled about it either. helicopter money is a statement and identifies original physical transformation, right? >> they are engaging in helicopter money. in essence, it is helicopter money. but because of what it does, i wrote an article that the central bank, they are inflation toxins. bank says they store these reserves. the money needs to seep out for it to be toxic. it is more bank lending.
was put in place, 50,000 miles of roadway and we still drive those roads and gain benefit in the economy from that investment. in the united states, what have we done? very little. we can't have more gdp unless we have more investment. >> this is what the liquidity trap is all about. there is no risk-taking in the term of fiscal investment, business investment. people just want to be safe. >> speaking to bloomberg's tom keene on surveillance this morning. just talking about the practicality of helicopter money being zero. and lots of talks about that in japan.
it some of the biggest stories in the news right now. aig is in talks to sell the mortgage insurer united guaranteed to arch capital group. that's according to a person familiar with the matter. toer and caucus trying simplify its company and free up capital to return to shareholders. they are discussing a possible sale price of about three point $1 billion. seekingpeake energy is a loan to refinance its debt. financial top and arrange the secured debt. they will use to buy back $500 million of its bonds. is looking for another director of its nine person board in response to investors criticism. but the board is hindering the change turnaround. the company is adding access provisions recommended by shareholders at the annual meeting. it makes it easier for investors
to suggest proposals. they are recovering from a string of illness outbreak that began last year. and that is your business flash update. >> let's get back to central banks and the bank of japan that is becoming quite the whale. the of the effort to boost stagnant economy, the boj is increasing stakes in companies putting it on course to become the number one shareholder in 55 companies on the nikkei 55 by the end of next year. bloomberg and daybreak asia anchor joins us with more on this story. was the most recent great idea coming out of the financial bank of japan. >> i am not sure if it's a great. >> it has been great for the stock investors in japan. that issue won't go away in
japan and. like helicopter money in the stock market. we have a line chart that shows you how much japan is buying in the equity markets. they are becoming about 60% of the etf market. can -- they didn't expand the buyback sheets but they did say that they would double the amount that they would put in to stimulate the economy. >> what companies are getting affected? >> they're trying to be as general as possible. it's going into companies pianos, aom yamaha list of the companies in which the bank of japan is one of the biggest holders. they don't want to become an active shareholder.
they just want to be a passive shareholder but the problem is they are growing so big. questions.lot of liquidity has been greatly hit. how will stock purchases affect the stock market? >> if they buy, they've got to be able to sell. if they can't sell, there will be a liquidity problem. the more bonds that they bought, the less and fewer times that they sold, it decreases the amount of liquidity. that is not yet the situation in japan. you have to remember that how much they bought is still about 2% of the entire total stock market capitalization of the nikkei. it is still a very small
and it raises issues with companies that may not have a lot of freely floating shares. >> i'm a bit concerned about what companies they decide to invest in. >> corporate governance is a top issue. just let the central bankers do it. they are mandated to be very disciplined. aig, i just mentioned them.
>> this is "bloomberg markets." >> it is time for options insight with julie hyman. julie: joining me for today's options insight's kevin kelly, chief investment officer at recon capital. we have been talking about this volatility and i showed her chart earlier about how the vicks is well below the average. it is about 19.8 and we are below 12 at this point. i know you have been looking at the historical patterns that we tend to see in the month of august. it's not entirely atypical, right? kevin: not at all. we had the lows for the year and on an intraday basis about 10.88 so it is not unfamiliar to see something like this but it is also really familiar to see a big spike in volatility. have big 1945 and we
market downloads of 5% or more. they happen in august and september. it is pretty interesting than august can be very calm and a very violent month when it comes to vicks. it is the fear index, but it's not. it's the uncertainty index. earnings just happened, so people feel comfortable with their positions, we see low trading volumes happen. you never want to shorten market on the high. it is a hedging index, buying insurance against a potential drop. that is what they are doing and we like to look at it. the markets you use vicks as well as other volatility indicators. what is really telling is that they have started to creep up from the mid-80's to the low 90's showing that we are seeing some spikes and that's an
indicator that it might be coming back. the curve has about 20 towards the end of the year so you're starting to see some indicators that it may start to come back soon. julie: you are one of the people xx from falling further. absolutely, it is completely prudent right now and everybody should be doing this were they can go out and buy a throughad on the market the volatile months and the seasonality. we can go to the end of september and expect it to expire september 30. you buy the 2190 put and you putally sell the 2070 against that and it will cost to about $20. about 1% over the market is. but it protects you right here from where the market is all the way down to about 5% or 6%.
you have great moves and this is the time to put on that type of protection. julie: what is your number one risk that would cause the drop? kevin: in the market, we saw what happened and it can happen again if we get to that consumer data around the market as well. julie: thank you so much. back to you. >> still ahead, amazon is one of the largest companies. there is skepticism when it comes to valuation. this is bloomberg. ♪
-- markets. i am scarlet fu. let's check in with mark crumpton in the newsroom. mark: donald says the obama has downplayed the threat posed by islamic state. during a foreign-policy speech in youngstown, ohio, trump discussed national security and said a new mind that is needed the ideology of radical islam. he also says hillary clinton is not up to the job. mr. trump: hillary clinton lacks by bernient, as said sanders, stability, and moral temperament to lead our nation. trump also said he wants to suspend immigration to the united states from volatile regions of the world. the f ei will give congress -- fbi will give congress notes from its investigation into
hillary denton's use of e-mails. ofhillary clinton's use e-mails. copies of classified e-mails will be included. the f ei ends they depart -- fbi and state department are negotiating which portions of the notes will be included. detonated a car bomb at a police station, killing five officers and two civilians. at least 20 other people were wounded. afterng resumed last year a cease-fire collapsed. americans finds most favor limited u.s. military action in syria, according to a survey by the chicago council on global affairs. 72 percent of americans approve of air strikes against terrorist. only 42% favor sending u.s. ground troops into the region.
reopenedngton monument a schedule today after closing early saturday night. the park service's does the closure was the result -- service says the closure was the result of a drop in power. i am mark crumpton. this is bloomberg. oliver, back to you. all of her: thank you so much. markets close in under -- all o oliver: let's go to abigail doolittle. abigail: the rally continues to march on. the rally now about 9% above the brexit in june. today, the markets are carving out another new intraday all-time high.
plus, the markets are on pace for a record closing high. rally. broad base out isck that stands micron. as mk him up sharply partners has taken its estimates partnersl year -- m km has taken its estimates for fiscal year 2016 above estimates. one partner believes the strength will continue into 2017. this is above consensus. consensus called for a loss in the current year. of this isinks all on dram spot pricing and that the strength k could continue. the stock was one of the worst on the air last year, but micron
is now up on the year by about 10%. it is turning into quite a turnaround story. we also got into hedge funds. on those?oving >> a flurry of activity on activision blizzard. more capital. janice paulson and company along with prominent investors there. as for what they are interested matthew cantor of bloomberg intelligence has a fundamental analysis on the company. he's has there are several things -- he says there are several things going on, including the subscriber base for world of work craft. warcraft.rld of plus, they have a new game coming out. see upside potential of more than 10%.
this could continue with bullish momentum. oliver: good stuff. abigail doolittle at the nasdaq. thank you so much. scarlet: critics who say that argue thatvervalued its revenue model isn't this a noble. our guest says you need to look at reinvestment differently. joining me is the ceo of fortunate advisors. go about would you measuring amazon's performance correctly? >> when we look at the revenue of any company, we want to look at the amount of cash flow it generates compared to the expected return on revenue. they spent last year over 12 billion dollars on research and development. if we treat that as an investment, it opens up a whole
new way to look at their numbers. they are earning over three times expected return on invest ors. is the implication of your approach essentially that it any given time they could turn off the r&d and it would be , but that thesher underlying business model is extraordinarily profitable? >> exactly. if you look act get walmart in back atay, -- look walmart in its heyday, it's free cash flow was negative, but over 20 years, it was one of the best-performing stocks out there. they were investing 100% of cash flow back into the business. amazon is not much different, but it is reinvesting in r&d instead of brick-and-mortar. sales are about double
the s&p. if you start coming up with different kinds of dilation metrics, when does that end? be priced to users, which might be very useful for other companies. >> measures like price to users gets you away from the underlying economics of the biz is. we -- business. we are not treating it any differently. invested $10 million in r&d and only produced a certain amount of cash flow and $10 million in advertising and produce that same amount of cash flow, or $10 million in bricks and mortar, should be investors hair? scarlet: -- investors care? scarlet: it sounds like a 21st century model. >> the accountants are trying to satisfy many masters.
one of them is lenders. they are trying to satisfy many objectives. i would not criticize the accountants for being out of pace, but to get a better perspective, you need to treat the r&d like an end. -- an investment. >> like any other company isses., amazon has m for your reasoning to work, do you have to have a high degree of confidence they will keep withg hit with -- hits r&d? >> i don't really worry about that. you are getting a charge on the r&d whether the cash flow is there or not. for the companies that cannot cover the cash flow, the returns look negative. scarlet: you have done a lot of
research on companies that buy s.ck their own share amazon doesn't. is that a positive? such is because they have a high return and they produce a lot of growth. if they ran out of invest ends, session vestments, buybacks might become a good idea at some point -- if they ran out of , buybacks might become a good idea at some point in time. >> what would have to change for you to change your thesis? >> the cash flow would have to fall below the expected return on investment. higher hurdle to have to cross. they have done a great job of ,otting it, -- of crossing it but many other tech companies do not. if their rate of growth in cash flow was not able to keep up with the r&d and the excel a
have had over time has altered -- acceleration they have had overtime faltered, that would be a sign. >> and want to see if you can project on the market overall in buybacks. i know you often think there are better uses of cash at companies, but it seems like some plans are dwindling because of other reasons and margins getting tighter. does that make you feel better or worse about the market? >> it is more complicated than that because i need to know where a specific company sets. buybacks can be good. bfortunately, most companies uy stocks back when it is expensive, not when it is cheap. are not bad, it is
should be reduced as much as possible, but a potential shift in u.s. policy threatens to reduce global trade. donald trump and hillary clinton oppose the transpacific trade agreement. a private equity fund has agreed to buy a private communication company. they are currently owned by ivory partners. they offer internet, phone, and cable service on the east coast. tim cook says he consulted with testifyingn before on capitol hill for the first time. in 2013, cook was called to testify on allegations that he was avoiding taxes -- that apple was avoiding taxes. , head ofa, foreign exchange trading in new
york has left the bank. he had been with bnp paribas since 2010, and was previously with the bank of scotland. while the pace of m&a is behind last year, do not count 2016 out. we had an assessment earlier today. off fairlyoming robust ties. last year was an unnaturally strong year and there was a lot of pent-up trade during the crisis. think there were a lot of large deals last year. when we look at volume, it is natural to have more caution. slowdown tiedhe
to the u.s. economy? it hasn't been as strong as people would have hoped after seven or eight years of prodding by the fed. r people worried it is not as strong as it could be? absolutely. and the issue isn't 1.2% growth and low capital investment, it's 1.2% growth and low capital investment after years and years stimulant conditions. this is driven by lack of confidence. if you don't have the secular tailwinds of high growth, you have a relatively strong stock market, as we seeing today, the question comes how do your valuation? liquidity has driven a lot of
activity. that is one way you can generate , and through m&a. >> one point 2% growth seems sluggish for the second quarter. to be morelling aggressive going after a target or coming up with targets than in a slowexpect growth environment? >> yes, the question becomes, particularly as it looks like the low interest rate environment is going to drag on and nobody really knows when that is going to change, as a result of that, there is a bit more pressure. to consider people things. i also think you have a bit of a bifurcation in the market. companies whose stocks have been doing well feel confident taking a risk or two. but the companies that are lagging feel even more pressure.
you have to ask yourself as a board or a management team what comes next. >> if you are in a lagging it is fake orr tnt, what have you, is this the best time to sell because your performance does not seem to be living up to others, or do you hold off on selling because you need more time to get what you can get to? >> those are companies that have the toughest question. on one hand, you say are we going to get nailed out by by generalbailed out market conditions? probably not. on the other hand, nobody likes to sell low. there are pressures on by side fromholders we have not activists on the market.
boards are almost proactively pushing management to a what are we going to do about this? >> has the strategy shifted over the last few years. it used to be that they were the edtsiders who came in and kick in the seat-of-the-pants these companies who were laggards or what have you. increasingly, we are seeing them get on board. strategy changed? and i wonder what kind of influence they are having on ins to schnell investors. it feels like they are having more. points that iwo think are worthy of comment. first, activist's are now a permanent part of the landscape. that is just excepted. and there is a recognition that they bring something to the table.
they have constructive ideas that you shooting gauge with the should engage with -- that you should engage with and take seriously. on the other hand, we have seen the analytics about passive funds ursus active funds. active funds. there is pressure on institutions to take a more assertive role. >> that was the cohead of america's m&a with jeff mccracken. the dollarming up, weakens against the yen. it's the chart you can't miss, next on bloomberg. ♪
illustrating how the day's news has impacted markets. i want to start with a history lesson. ago today, richard nixon took the u.s. off the gold standard. credit to mike mckee for pointing this out and tweeting it out earlier. the red arrow indicates when the and took the u.s. off the gold standard. dollar.loating the said it would be temporary. that temporary has lasted 45 years. it was called the next in shock. >> that is fantastic chart. some argued that taking the u.s. off the gold standard meant there was no discipline or checks and balances on the federal reserve, and that we are we are indicament because of that.
>> and the dollar would of been destroyed. scarlet: and we are trying to get to 2%. oliver: the long trudge. we are looking at how hedge funds are faring, dollar versus yen. we are looking at contracts and betting on that. you can see this took a bit of a dip. bank of japan did not quite meet expectations for stimulus. thettle bit of a dip in yen. hedge funds say they think the strength is going to continue. disrupt thiscould over the next month. the fed in september, bank of japan also looking to see where they can come up with more stimulus. but that has been the story of late, that kind of reversal of the japanese yen having gotten stronger versus the dollar.
those are things to watch. that is kind of the target currency. scarlet: the positioning is critical. everyone is all on one side on the trading. >> that is what is important about that chart. this is a three month chart. they see that the positioning is the strongest it has been. it lends itself to strong moving currencies. i am looking at data out of the u.k.. we have the first post brexit real data on employment and theil sales coming up in days ahead. this is the year over you are of change in greater london asking --ce bashir over year year-over-year of change in greater london asking price. basically, nothing. it is the lowest since may, 20 15. you can see that it's the lowest level in several years.
you could make an argument that maybe real estate had already started to slow down, but it is clear and makes an that with brexit -- makes sense that with brexit uncertainty, some of that real estate is coming off the market. but overall, some people say that london real estate like new york real estate is a class unto itself. it's a safety deposit box in the sky. that does it for bloomberg markets. what you miss and market close is next. we are talking about record highs for u.s. benchmarks. this is bloomberg. ♪
runningand i am oliver -- oliver. all three indexes finishing a new highs. about why the second inning of brexit may be worse than the first. ministerjapan's prime -- japan's emperor may want to retire. we look at how this could affect the prime minister. oliver: and we have the charts you cannot miss. scarlet: all three benchmark indexes closing at record highs yet again. another day, another record. but when you look at the volume, trading on the dow and s&p were a double digit percentages below average. it is mid-august, after alnd