tv Bloomberg Daybreak Americas Bloomberg December 26, 2018 7:00am-9:00am EST
, the longest rally on the brink of instinctual as equities head for the worst december on record. we'll market stability is coming. minister says oil will be quieter in 2019. calmdent trump tries to the markets. he says by the depth and called steven mnuchin a very smart person. welcome to "bloomberg daybreak." i am alix steel. david westin is off today. will we get a reprieve from the brutal selling on monday? index at that level. dollar-yen snapping an eight-day losing streak, below the 200 day moving average, getting a reprieve today. at 2.75.ar yield
.rude getting some support how long will it last? of 1.5 percent after falling to the lowest level since july 2017. the superlatives keep on coming. we are joined by our guests. i'm going to start with oil. take a look at brent. sincet its lowest level july 2017. when you talk to your guys, is a technical or a fundamental story? >> a fundamental story. you have opec saying we will cut one million barrels and prices still fall below that $50 psychological level. that shows people are looking evidenceply cut, real of a supply cut, before they start buying. alix: marty, how much of it is
trump?-- trump in therectly sense he is encouraging production. he thinks the more we produce, the better it is, even though he is crying for lower oil prices. be careful what you ask for. alix: this is s&p versus debbi ti, peaking at the same point. what is the correlation? >> the correlations aren't as important as the supplies. fundamental supplies drive oil markets. it is a physical market here at it has to do with actual barrels being shipped around the world. waiting for evidence that opec will cut that production before prices go up. about thes talk fundamentals, the s&p on the brink of a bear market.
my mother and mother-in-law talking about what their 401(k)s will look like going into that. president trump saying you should buy the dip. that was ao thought good strategy over the last couple of weeks are probably licking their wounds. attempts by this administration to reassure the markets have backfired. this morning, sentiment seems a little positive, but that could be wiped out in a flash. you: i don't know how well can take these market moves until mid-january. it's like sentiment affecting sentiment. >> exactly. nobody wants to lose that much money, and they are already people willwil try to preserve any gains they have. market, so we have to be cautious about what is
happening this week. next week, that will be more important. alix: even though volume is higher. president trump speaking to reporters on tuesday. he said, we have companies, the greatest in the world, doing well, record numbers, so a great opportunity to buy. i we going to have to see more fundamental support from president trump? >> what about the government shutdown, the personnel moves in the white house? donald trump trying to reassure the market is more about actions than words. he has to create some semblance of stability. as long as he will not move on the wall, and the democrats will certainly not move, we could see a protracted shutdown, and that just generates more uncertainty. haven't mattered before. >> it is not about this
shutdown. it is about what it says moving forward as we move into the debt ceiling talks in march. it suggests this is a dress rehearsal for that, and that will be they give they can't reach a deal on the debt ceiling. alix: if you look at the sentiment versus fundamental indicators, what is the case for buying the debt? >> i don't think there is much of a case. people are spooked about the political landscape. what we saw from the treasury secretary calling the big banks, that was supposed to reassure markets. a completely backfired. if this is a dress rehearsal for what is to come for more consequential events, it did not go well. alix: rate hikes are being priced out of the market altogether. >> that has to do with how well is the economy going to do, when will it slow down come a how will the global economy slowed down going forward?
so there are a lot of concerns about global growth, trade wars, on top of the political dysfunction. alix: that is spooking a lot of people. the debtu mention ceiling. will steven mnuchin be there for that conversation? smart guy, as donald trump, which may be the kiss of death in this administration. alix: you are running for the hills. >> really. we have seen this pattern before were donald trump expresses concerns about members of his cabinet, public is supports them , then two months later, they are gone. if i was steven mnuchin i would be worried. a meeting last week in washington that he wants to stay this term and next term. alix: we will get into that later in the show. guys, thank you very much. you can find all the charts we are going to use at gtv on your terminal. browse the features and say the charts at gtv .
>> this is "bloomberg daybreak: americas." this is your bloomberg business flash. more items have been ordered on amazon ever than before. millions started prime membership spirits sales of amazon devices are up significantly. more than one billion items shipped for free with prime. chinese authorities are planning
to help banks replenish capital and continue with their crackdown on financial risk without hurting credit growth. loans ande in bad slumping share prices is making it harder for banks to raise money. china hope stronger buffers will cause banks to increase lending. the nikkei 225 below 20,000 as it slipped into a bear market. the 5% tumble on tuesday was the worst single day in more than two years. the index is down 21%. that is your bloomberg business flash. president trump growing frustrated with steven mnuchin, according to reporting over the weekend. the president talked to reporters yesterday and tried to voice support. are raising rates to fast because they think the economy is so good, but the fact the economy is doing so well is
basically a good thing. said steven mnuchin is a very talented guy, a very smart person. that, is it time to dust off your resume? >> i read the president's endorsement as lukewarm to slightly positive. have somesaying i decisions to make, but he also wasn't saying i have full confidence in my treasury secretary. primaryd his frustration is with the fed chair. of that, some of that frustration has been displaced on the treasury secretary, in part because he was promoting the idea of going with jay powell.
it is too soon to say. if he wants a new treasury secretary, the problem would be the impact on the economy, and who could be confirmed and who would want it. the president is probably stock with the two men now. steven mnuchin always been loyal to the president. he's looking for someone to be frustrated with. this is how he typically deals with it when he has that instinct. david: and the market reaction as well. big companies, greatest in the world, doing well, record numbers, a tremendous opportunity to buy, really a great opportunity to buy. i don't think i have heard of president say it is time to buy stocks. >> you can see president trump putting on his real estate pitch man had. the property will only appreciate.
obama early in his presidency in march 2009 in a much more cautious way broached the idea that there could be some potential long-term benefit if you have the money to invest long-term and stocks. the way president did it is different. also, he is trying to turn something around using the bully pulpit. presidents are typically cautious about moving the market. president trump has taken a different approach. david: he was talking about fundamentals to back that up. alix: he was talking about the fed and the economy, trying to sound positive about the underlying fundamentals. welle economy is doing so that they raised interest rates. president obama did not do much of that. it is easier when you have low interest rates. normalize interest rate. a normalized interest rate is
good for a lot of people. the money in the banks, they get interest on their money. alix: what is the message he's trying to send to the general public, who probably have no idea what the fed interest rate is. >> the message he is trying to send is the economy is good and i made it good. the message he's trying to send to investors is we know the market is about perception. the president is not publicly acknowledging that his own approach to both the tax overhaul and tariffs and trade and the shutdown are having an impact on confidence and the idea of stability going forward, so the president does have other measures, levers to work with, but they in fall a long-term consistency in policymaking and and and and knowledge meant of the relationship between interest rate and public policies. rhetoric toto use
stop this trend and turn this .round there are some policies that he set in motion that will also have an impact here. alix: great to catch up with you. thank you very much. the s&p teetering on the end of .ts bull market do you want to be buying that dip? are we going to go into a bear market? what does that mean for your outlook? 2009, it has been a bad call to say the market, the bull market is about to die. i have been a long-term bull market fan for many years, both the top down and bottoms up perception that things are getting better.
when we look at it now, the real problem is algorithmic trading. it has gotten out of hand. it is a worthwhile comment to read the wall street journal about the impact of technology on trading. cooperman,en to leon semi-truck miller -- stanley real concerns expressed by longtime people in the markets. we think it is a horrible time to sell. the old adage is by low, sell high, and for long-term investors, three to five years out, long-term use to be seven to 10, but if you consider yourself long-term, 3, 5, or seven, it would be a mistake to sell now. david: if you look at the s&p -- alix: even the most bullish and
bearish forecast, there is still 10% upside. you can see that in a chart that shows the diversions of the two. the set me no matter where we go it is up from here when we stop the selling? >> history would tell us that indeed when the selling stops, we will likely go of. david: it seems so obvious. alix: the fundamentals are not bad. is reluctant to say fundamentals are not bad in the economy is good. all.is not the case at i am politically agnostic as a strategist. it is regrettable the president has to be pitching the market. that is his business, but i am shaking my head. the economy has shown remarkable , and it has been improving significantly. there are serious issues at hand. there is the trade war with china, a new leadership at the
fed, still new after almost a year now. it takes the market a long time to become somewhat comfortable with the new fed chair. on top of that, plunging oil prices. it looks like the second half of 2015 into the first seven weeks ,f 2016 is what it looks like more so than 2008 or anything like that. david: fed expectations are almost price are completely. alix: what should it be? >> we usually do our targets for the next year in december, usually by mid-december. this year, we are holding it until the end so we can come up with a realistic target. right now, last i looked, futures were up when i looked at my bloomberg a few minutes ago, but how is it going to go through the day? what is the news crossing the tape?
at the same time, i'm not looking for dramatic kleins from here. --hink we have seen fit work dramatic declines from here. i think we have seen the worst so far. there on the flip side, was a great piece in bloomberg opinion we should all look at. alix: i'm talking about why the continued selloff. liquidity,ots of more investing, passive investing, so you go past the valuation and what it should be, but now it will be consistent to sell the rallies rather than by the dip. how do you have conviction in any rally we see? >> the conviction has yet to be a private yet, but it has been shown within the last couple of weeks. we had one strong day on a rebound after the g20 meeting in argentina. then there were questions, did the chinese really say they were anng to do a moratorium for
, and eventually it was shown it was. we have the fed in the process ,f interest-rate normalization but it's slow speed, sensitive to growth elements and vulnerabilities, so it has been remarkably successful at it. the president has been commenting on the fed, regrettable, but it is an unconventional presidency. we have to accept that. , indid have the election of november 8 this year, and we are back to a two-party system in congress. particularly overwhelmed by the negativity. it concerns me, but i do think we are in a position and will likely see the markets, as they did from 2015 into 2016, recover nicely. it does not mean we are going
alix: the nasdaq still in a bear market. at its lowest level since september 2017. take a look at the bloomberg. large cap nasdaq is still outperforming the s&p. , but the nasdaq down 8% versus 12% for the s&p. still with me is our guest. what do you buy? >> you want to avoid filing into defensive plays. utilities and consumer staples
are trading at a higher forward multiples and consumer discretionary, while at the same time, technology is probably agollel to where many years at the turn of the last century the automobile was when it was replacing the horse, so it would seem to be the wrong time to dump technology, especially at these levels. it would appear to be a better time to layer in, keep what you got, and hang in there. the next time you are sent in with friends and someone says, who was the president in such and such year? are you going to say let me check the encyclopedia on the bookshelf or let me go to the library tomorrow, or you're going to say let me google it right now on my smart phone? alix: on a fundamental basis, sure, but do you have to offset
it with some defensives in some capacity? how do you offset the risk? >> hopefully you were diversified and underweight your consumer staples, utilities, and market weight consumer staples, so you own some of that. utilities at various points this year were stinkers, and now they are terrific. alix: exactly. explain to me what happened on monday and you had a brutal selloff and utilities were the worst performing sector? >> it had not gotten hit yet. the algorithms were looking for a broader swath of devastation, so to speak. it's not quite devastation come it is acting out. you have had a significant tantrum here. last week, you had the fomc
meeting, the comments by the fed , the questions about how the fed had done this, but we were also going into a partial shutdown, so that was like step on the gas. it was that sell everything mentality that has been proven wrong over the history of time. when you look at the charts, patience tends to get rewarded. if you are invested in enron, good luck. john, you are staying with us. coming up, russia trying to calm the oil market. will it succeed? this is bloomberg. ♪ is bloomberg. ♪ amazon prime video is now on xfinity x1.
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s&p futures up by 1%. 44.60 is the level you want to watch. that would indicate the end to the bull market. in other asset, a little bit of a wine down of the safety trade we saw on monday. dollar-yen slightly higher, the first time in eight days we have seen that, snapping the longest losing streak since march 2017. what kind of follow-through buying will we see? taking a look at yields, more selling on the backend. 2.75 on the 10-year. gold still study at a six-month high. talk about where you go for safety, gold was the commodity of choice. crude participating in a rally, finally. but can it hold? such a bearish sentiment out there, slipping below levels of july 2017.
let's get a headline on what is happening outside the business world would viviana hurtado. viviana: president says the government shutdown will continue until they get funding for border security. the impasse now in its fifth day. >> i don't know whether the government will be open. i continue it will not be open until we have a wall, fence, whatever they want to call it. i will call it whatever they want but it is the same thing, a preventing people from pouring into our country, bringing drugs. viviana: asked what he would do with a bill that does not provide funding for the wall, he said, probably presidential harassment. customs and border protection have ordered medical checks on every child in their custody. the move coming after the death of a boy dying on christmas morning after falling ill. he is the second child to die under the agency's care.
both kids were from guatemala. united states is still the top contributor to the u.n. it pays more than $10 billion a year. global news 24 hours a day, on-air, and @tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. i'm viviana hurtado. this is bloomberg. alix: oil prices trading back against the lowest level since july 2017 as a brand is getting a nice bump over 1%. will it stick? joining us is an energy analyst. still with us is john stoltzfus. somed end up seeing intervention from russia, saying markets will calm in the first half, and we can always have a meeting if things get worse. are they trying to stem and find the bottom here?
>> i think he is. a lot of what has driven the decline in oil prices lately has been more concern about where the environment is going, what is demand going to do, which is obviously not under the control of opec plus or u.s. producers, for sure. i think they are trying to signal to the markets that they will do what they need to do in order to buttress oil prices. alix: is it going to work? stewart: i do think the decline we have had lately is a bit overdone. most of the oil price cuts we whentarting in november 4 the iran sanctions were reportedly going to take effect, has been about supply. what has happened in the last three weeks has been about demand, concerns over macro. that is not really under the control of producers. alix: to that point, what is it
going to take? will it take a demand pickup from the likes of china, or material exports slowing when we get the next round of data in the next few months? we are about as far as we can go to the downside on oil prices. capacity,k at spare spare capacity for opec is only 1.6 million barrels a day. when prices went through the roof in 2007, they really were of much lower than they are now, 1.5 million barrels a day. so there is not an awful lot of wiggle room in case there is any kind of supply disappointment. to be fair, places like the permian basin have been surprising only to the upside on oil supply but there is a limit. at some point, take some geopolitical shock somewhere, nigeria, liberia -- libya are
common flashpoints, maybe some supply disappointment in the lots of places around the world that are decent jupiters to supply. i don't think it will take that much to push prices back into some kind of mean reversion move. alix: john, what does that mean for equities? s&p and wti picking at the same point. is one leaving the other? reflect that they concern about future growth in many ways. what the other guest said it makes a lot of sense. the focus right now is much too much on the negative projection moving forward and the likelihood of a real bounce here is probably as likely as what we saw in the first quarter of 2016, where oil had fallen to a $107 in june, from 2014, down to eventually $60 and
change, and then started plunging. the thought was china had devalued its currency for a second time, a hard landing in china, disregarding the fact that it is a mandated economy. hard to have a hard landing when the government can say this didn't happen, this is happening now. of 2016 after being at a low in february. all of this stuff can revert fairly quickly. we cannot help but think that this may happen again. to echo what stewart is talking about about the overall price as well. in that respect, looking at what you are watching into next year, refiners could do well, midstream, walk us through the defendant shares --beneficiaries. viviana: if you look at -- stewart: if you look at where oil is heading, i would say in the 60's.
this is not the heydays for the e&p community. they will make some money but not a ton of money. attractives really because they benefit merely on the volume rather than the price. they are essentially told collectors. as long as prices are high enough that the customers will continue to ship, midstream wins before e&p will. on a downstream side, refiners typically win when refiners diverge. there are some fundamental reasons why refiners should do well beginning in the second half of the year -- excuse me, 2019. these looming marine sulfur changes will drive up demand for diesel,/demand for high sulfur fuel oil, which is some of what western canada produces. the cost of crude acquisition that the refiners will have to pay will be a lot less than what
they will be able to charge in the markets for their refined products. to that point, you want a lot of diesel but not a lot of gasoline, but when you make diesel, you make gasoline. what kind of refiners will feel the squeeze the most? we are already seeing refiners in europe rollover, including in asia. stewart: a lot of the u.s. refiners are complex, at the throughre able to drive the middle and cut some of their gasoline production. diesel inventories right now are below the bottom of the five-year range. inventories are a little higher than average. names like holly frontier, marathon petroleum, valero , all of themips 66 will be driving improved margins, improved earnings results in 2019. given they are trading at a
discount to their historical fort averages -- forward averages, they are interesting oil bets. if you are going to go more defensive or get into value, you would think this kind of environment is perfect for exxon or chevron but exxon is having his worst year since the reagan administration. we must say we have been under way the energy sector the last two years. it has not been a bad call on our part. now, likely, we would have to take a look at that and see what we would want to do with it going into 2019. like i said, we have still not arrived at placing our targets for 2019, for the s&p and the sectors. we are pausing because of this in order to decline we have seen this month, rather extraordinary. break, iioned on the was there for the 1987 crash when the dow plunged 27% in a
day, and i was in a responsible position at the time, working at five world trade center at the time. that, these things happen, but you have to put them in perception, be patient with it. energy looks like it has a shot but it's a little early. i have been a bear on energy stocks for two years, and it has been who me to be so. alix: if you had a rally in the price, you have not gotten rewarded necessarily in the equity market. does that change for the e&p's at some point, for the big oil producers? you are pointing out the disconnect between crude prices on the one hand, energy stocks on the other. for investors who want that sleep at night factor to invest in energy, i would say there is value in being defensive. defensive in e&p is not necessarily a chilly exclusive.
job by do a better focusing on names. there is a better margin of safety if prices go south again. i would think of names like conoco phillips come in which is generating probably close to double or more operating cash flow relative to its spending resources is another perennial cash flow surplus name. in a declining oil price environment, these guys will still be making money. certainly, less than what they would like to, but in terms of forward estimates, i think these names will be as well primed for low prices as well as anyone out there. ,lix: enjoy the conversation stewart glickman, john stoltzfus , good to see you as well.
traded funds have expanded by more than 100 tons since october. former nissan chairman carlos ghosn remains behind bars in japan. the men arrested with him has been released. he was granted bail on christmas after spending more than a month and a tokyo detention center. hosn ongedly helped go the report by millions of dollars. meanwhile, corporate governance rules have been changed. the board will examine whether the purpose of the shareholding is appropriate and whether the benefits and risks cover the cost of capital. the automaker holds a 15% stake in renault but has no voting rights. that is your bloomberg business flash. alix: turning to wall street beat, three things that bloomberg is covering this morning. former aide's leaves jail after spending a month behind bars. then the trouble with algos.
stanley druckenmiller saiz they have prohibited his ability to read market signals. skyhigh prices are falling, near top 10 apartment sales jobs this year. two of ournow are guests. out,kelly finally gets $640,000 in cash. i wonder where that leaves his body, carlos ghosn, still in jail. from our perspective, he is stuck there for a while, especially because the authorities added another layer of allegations. renault and nissan have been dealing with the situation in different ways. the issue of the cross holdings has come to light today. this is an issue for him. there is a level of
complexity here that will take time to sort through. did he come up with a special holding company, to pay him, did he transfer the losses to companies? it is very layered and complex. it will take a long time to sift through. alix: stanley druckenmiller saying the reason you may have losses is also complex. he talked about algos with bloomberg television earlier this month. >> with machine trading, they tend to have different motivations. momentumnot nearly as oriented. just when the trade looks like it is going up, it may be some algo with some standard deviation or something going on, and it has a really inhibited my ability to read the signals. two feelings to this, one, it is just really hard to do your job like in the last 30 years, but if you start blaming everything under the sun to computers, that is another
story. >> finger-pointing is all over. you have people on twitter saying when i have a bad year, i'm not blaming leeco permit. there is a question on how much of the algos are exacerbating the selloff and what opportunities hedge funds can find. there are still winners in this environment. it really fares well for the people that are doing well. if you wantalgos but if you are not doing well -- on the flipside, i spoke to andy hall last week, and he said it is a totally different trading environment than 30 years ago. you have to look for different ways to find an edge. >> it is a super difficult market, moves much faster. in that sense it is more difficult to make money, but we have had equity electric markets -- rounding, so now of the usual suspects will not cut it in this environment. we have also had studies in
other markets like foreign-exchange that says high-frequency traders stick around and it is the banks are the ones that leave. i think the jury is still out on this. it is very convenient to blame boys when there could be something else going on here. alix: volatility should be good for hedge funds. keepople look at them to them stable in the downturn, so this should be a time for hedge funds to shine. blackstone says they are investing in less but in bigger ones. it is not like the market is pulling back entirely. there are still more that have closed then opened, but they are still around. a fun story,o to lots of rick people and their apartments. apartment sales are down from the peak in 2014. >> what people are saying is, looking at the bigger microenvironment, saying, we
have a higher absolute number but on a relative basis, this is lower than the last three years. there is a concern that as the cycle turns, these property prices will come down. alix: this year, the highest point was a $70.3 million duplex penthouse. that was down 26% from the 2014 hi. prices are still pretty juicy. >> there was a $17 million haircut on one apartment, can you imagine? in one year. wonder at least what amazon and google will do to the city and different areas. i don't think the story is quite over yet. alix: real estate prices in queens are starting to rise. appreciate it, guys. coming up, president trump publicly voicing confidence in treasury secretary steven mnuchin but our reporting says otherwise. more on what i'm watching next. this is bloomberg.
alix: here's what i'm watching, twitter and everything that has to do with the fees. showing somemp frustration. back with me is marty schenker. that dovetails with our reporting that says this is a real thing. reports, trump, by all by our own and others, has just been stewing by what is happening in the markets, the fed defying his calls for stopping these interest rate rises. against powell and the person who recommended him, steve mnuchin. it is a typical thing. he will real privately, publicly support them, and then two months later, that person is gone. saw, that support that we
i think they are going to get it. steve, he is a smart guy. ,hat is a different thing from i support my treasury secretary as a treasury secretary. marty: donald trump has not been shy about overstating the qualifications of people that he likes. it is not like he is the greatest treasury secretary in 200 years. he was kind of touching the bases, it was not a full throated support of the secretary. if i were steve mnuchin, i would be a little worried. alix: who would ever want to take that job again? marty: it is pretty nice having your signature on the currency. there is a real status to being treasury secretary. in this administration, the treasury secretary has also taken on a roll of secretary of state in some ways with the imposition of sanctions, the state department being in the
background. that has been at the forefront of what constitutes trump's foreign policy. alix: where are we in terms of domestic policies and the shutdown? call it whatever you want, he said, just get it done. think we have to prepare ourselves for a long shutdown. i don't think either side will move. the democrats definitely will not allow donald trump to fulfill a campaign promise on the backs of this election that just passed. they are just not going to allow it. you. marty schenker, thank great to see you. coming up, shutdown, markets, the fed. we discuss it all in d.c. this is bloomberg. ♪
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the s&p's longest rally on record is on the brink of extinction as investors selloff and equities head for the worst december on record. oil market stability is coming. the russian minister hints at the possibility of an extraordinary opec last meeting after brent post below 50. the president says buy the dip and backs secretary steve mnuchin and calls him a very smart person. welcome to "bloomberg daybreak." i'm alix steel. happy holidays, everybody. that brutal selloff we saw monday, the threats of erasing the bull market all on the sidelines this morning. the s&p up by 1%. will we see follow-through buying, or will the bears continue to take control? dollar-yen also snapping an eight-day losing streak. now a little bit of a reversal as the dollar is stronger against most in g10 currencies. $41 billion worth of five-year notes coming due at 1:00 today.
2.75 is how we print on the 10-year. crude off the sessions of the high but trying to sustain that $50 level. mr. novak trying to provide support for the markets. now let's get an update on what is making headlines outside the business world. viviana hurtado is here. a second immigrant child from guatemala has died while in the custody of u.s. border protection. visited detained with his father since december 18. authorities first noticed he was ill on monday. cbp has ordered medical checks on every child in their custody. >> it is just tragic. we are thinking about his family right now, what they must be feeling to have lost their child christmas day, to be in a strange country not knowing what is next for them.
we want to do everything we can to help the family. the inspector general is investigating the causes of what led to another child's death earlier this month. indonesian authorities are asking people to avoid the area hit by last week in tsunami. more than 430 people were killed when a volcanic eruption triggered under wonderland slides that created the disaster. high waves and rain remain a threat as government workers continue to monitor the volcano's elections. afghanistan's presidential election will be postponed for several months. officials say they need more time to fix technical problems. the election committee wants to confirm lists and train staff on a biometric system designed to reduce fraud. global news 24 hours a day, on-air, and @tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. i'm viviana hurtado. this is bloomberg. alix: u.s. stocks on the cusp of that bear market as rising
interest rates and trade concerns weigh on investor sentiment. we spoke to executives over the past few months to get their take on the biggest risk going into 2019. >> we are not immune to geopolitical situations. for us to stay focused on the work we are doing is important. >> trade is what we worry about. the stimulus in the u.s. economy is more powerful today than the potential negative impacts on trade. >> we need to be prepared for a world that will be less global trade, more local. threat is the input prices we are facing, on the material and commodity side. headwind is our ability to expand and other places. >> today with the modern banks, everything is a risk. we turn the lights on and we have a risk-weighted asset. >> where you have to watch is when that manifests in people slowing down, wade growth,
stopping consumer spending, or businesses actually pulling back. worried about the risk of the slowdown. it is always going to be in the u.s. and economics driven thing. abx: joining me now is the cohead of fixed income. thank you for joining me. based on all of that uncertainty, when you look at a market that may lose its bowl flag, what do you do? there is a lot of uncertainty in the short-term, and that makes sense. however, the markets are interpreting things in a very black and white matter. either we have strong growth or we go into recession. i think there is a big in between. we have been growing at above trend growth for a while. what we heard last week from powell is we will go back toward
trend. that is not necessarily a disaster. i would also remind investors, still with the selloff over 10 years, 12% annualized return on the s&p. alix: perspective. totally what i want to tell my mother-in-law at dinner. you have president trump saying yesterday, buy the dip, we have companies, the greatest in the world, it is a real opportunity. on the flipside, mohamed el-erian writing an opinion article saying the reason you cannot by the dip is because there are some fundamental changes in the market. liquidity injections gave rise to asset prices, decoupled from fundamentals. you have passive trading, which means you will sell the rally, not buy the dip. who is right? >> always hard to say. i'm not sure their views are as contradictory as you think, at
least from the fundamental perspective. ,hat they are both saying is prices may have been too high and this is a buying opportunity in the long run. the economy is strong. will have ahile we lot of volatility, it will not be a disaster. unemployment at record lows, growth is still strong. inflation, which had been ticking up with oil coming down, is now less of a near-term concern. no one can predict the short-term. one thing we may not be talking about somet is how of the liquidity in the equity markets? these wild swings we are seeing, especially on a day like monday -- alix: very high volume. >> especially on a day like monday where i don't know the percentage of traders in the office, to have that kind of volatility says something about the picture as well. alix: on the fair side, you have the market pricing out right hikes for 2019, 2020.
first of all, justified? >> we don't think so. you look at where we are today without the bias of where we have come from. if you didn't know what happened in the past 20 years, you would see growth still above trend, inflation, despite oil going down, going up. most thinkis at what is full employment. -- people world hoping -- were hoping that the dovish hike would come out. they said data dependent. is not the same as putting the brakes on. we think the market is misinterpreting this. hard to say how many times they will raise rates next year. it will be dependent on how strong the data is. alix: i wanted to bring up another mohamed el-erian quote because it really does a good job setting of the issues.
the economy is actually really good, enabled to withstand a lot of stuff. it is the background noise getting us into trouble. the economy has become more honorable to policy mistakes and market accidents. these "the bruins while constitute a critical mass renders more both susceptible to a slowing economy." we would be ok if it were not for these other things. >> as you get later in the economic cycle, later in the credit cycle, these risks increase. that does mean -- does not mean that your base case should be negative. absent trade, we were saying all the same things in 2017. commodity prices are dropping, late in the credit cycle, etc., markets are unstable, the fed will mess things up for us. it was very different back then. 16 and 17 were pretty good years. i'm not saying 19 and 20 will repeat that. i think we will have a lot of
volatility, but this base case of the world coming to an end, given the data out there, does that make sense. alix: top call in 2019? >> we will see volatility. you have to be a long-term investor. if anyone was able to protect these short-term moves, they would be on the beach all day. no one knows what will happen in the short-term. long-term investors have to take that view. i would also point out, something that has not been true in a while, with spreads not widening as much in high yield fixed income, those returns will likely be competitive with stocks, with less volatility. if you look at high-yield returns over the past 10 years, only 100 basis points short of s&p returns. that is a big number on annualized basis, but you have less than two thirds of the volatility. you look at the high-yield market, only a few percent as
opposed to the s&p going to bear market territory. necessarilyd not look at all bonds, high quality has finally turns as well, but lower quality is likely to compete with stock returns over the next two years with less volatility. alix: we will get into high-yield with oil in a second. you are sticking with us. 2019 will see better days for the oil market, according to russia. looking for some stability in the oil market. what does it mean for equities and the credit markets? this is bloomberg. ♪
amazon calling it a record-breaking holiday season. more items have been ordered worldwide than ever before. tens of millions of people started free trials or paid accounts of prime membership. itemshan one billion shipped for free with amazon prime. exxon mobil is headed for its worst animal performance since 1981. the oil giant is down about 20% for the year and things could get worse in 2019. the decline comes as exxon pursues one of the largest restructurings in its month history. the company is making a $200 push for south america and mozambique and papua new guinea. theceo of rosneft says interest in rate hikes have affected global prices. he says under conservative scenarios, he sees oil prices remaining relatively close to where they are now at $53 a barrel. that is your bloomberg business
flash. alix: joining us now on oil prices, tina davis. gershon distenfeld is still with us. we had a gain of over 1% for brent. mr. novak saying we could always have a meeting if we need to, stability will come into the oil price. it seems like this session has wiped out that gain. tina: london is close for boxing day holiday, it has been fairly illiquid in the oil market so far today. we did see brent drop below 50, which is a nice round number. doesn't mean anything from a technical standpoint but it's worth noting. we saw a lot of noise from the russians yesterday. alexander novak, the russian quoted inister on tv, this paper, we also heard from a kremlin spokesperson to talk about oil prices. what they are saying repeatedly is relax, cuts are coming, this will be sorted out.
wait until early 2019. the other part of it is this end of your volatility is normal and don't panic too much. flipside, oil at 53 under their conservative forecast. tina: when you talk to the members and governors, 80 is a place where people feel more governor -- comfortable in terms of state budgets, etc. if you're talking about a time when the dollar is strong, if you are russia, you don't mind too much. you're getting more rubles for each barrel of oil so it is not hitting you quite as hard. the dollar is ticking up. we will see what happens when the u.s. market opens, whether or not brent and wti can hold their gains this morning. alix: i joked on monday, i think opec could come out and say we are no longer producing, and the margins would still go down. in all seriousness, is this more dealingsue with algos,
with hedges, banks having to sell oil, how much is a short-term technical? tina: difficult to say. there is always a slew of factors. when we have been reporting on is how closely and symbiotically brent and equities prices have been moving together. saw in not something we the last downturn in 2014, they were moving in opposite directions. the equities and the markets are pulling down oil and vice versa and no one can seem to get re-in the short-term. alix: that leads me to your call, if you are more positive on a longer-term basis, how does an oil price that is volatile, around 50, how do you bid? this is actually very different from 2014. the e&p companies in the high-yield market, back in 2015, there were more of them, more highly levered, and they were
assuming 80, $90 oil. those companies defaulted in 16 and 17. they are gone from the market. what is left are companies that can withstand. if we are in this 60 or slightly below range, those companies will be ok. to the point that tina made a moment ago, the market reaction made a lot more sense. we should have an inverse correlation. oil ask as a tax on companies. any input costs, transportation cost. it is true for the equity market and the corporate bond market. lower oil prices are not the worst thing in the world and could actually lead to lower default over time. and they are going to be lower default, the markets will not be cheering that idea. certainly, we saw the saudi's in 2017 saying we are going to wait for all of you to go bankrupt before we do anything. as you pointed out, a lot of
them did go bankrupt and we saw the cost go down. the question is can i go any further? there are certain plays where you can make money at this price, but not many. we have seen were you did not have to be cash flow positive ever in your model to survive. i think the credit markets are a lot less forgiving than they were a few years ago. gershon: to be clear, i was referring to defaults in the 85% of the high-yield market not directly tied to oil. just to make that clear. has everyone gone bankrupt? but a lot has, and the ones that are left are stronger players. that would be much less of a threat today. alix: as spreads are widening for ig and high-yield, come into the bloomberg to see where we are at, where will there be buying opportunities? there has been a lot of
talk about where the leverage in the m&a space is, some idiosyncratic events, ge, gm. the broad high-yield market from a spread perspective, particularly from a yield perspective -- sometimes super forget that spreads are not give the same kinds of yields that yields do. unlike most valuation metrics, which are not usually great indicators, especially in the short-term, in the high-yield credit market, you're starting yield is a good approximation of what you'll get over the next five years. we are closing in on 9% yields. because most things don't default, most company take other debt premium early, those things tend to offset each other. a market that will give you high signal digit returns over the next two years, and as you are seeing, equity goes down, but a lot less, volatility, lower drawdowns, that could be an interesting place for investors
to consider. not as a replacement for other fixed income investment, but a place for equity exposure. alix: leverage loans? the credit quarterly has not been as good. investors have wanted floating-rate debt. a lot of risky companies that should have paid above market rates, because there is so much demand. inm worried about liquidity open-ended loan mutual funds. that is because there is still a huge mismatch in terms of offering liquidity and when you sell a loan in the marketplace, is still plagued -- takes three or four weeks to sell that loan. does that mean every high-yield fund will end up having a problem? the comparison was off. it was not that the fund was high-yield, but it was extreme the concentrated and very illiquid assets. that is true of a lot of loan funds as well. i hope it does not happen because it would not be good for the other markets. that is the market we have to
alix: time now for the bottom line, three companies worth watching this morning. joining me now is our bloomberg deals reporter. i want to look at nissan. they finally change some corporate governance due to the court -- carlos ghosn thing. two companies you cannot hold the same kind of stakes. why now? where were you before? to gets about time, nice it done before the end of the year, before proxy season rolls
around. that is about all i can say about that. what they are implementing enough to stop what happened with carlos ghosn, allegedly? >> they will say it is a one-off. there are a series of governance failures that this company has been plagued by, obviously over a number of years. i think they will turn around and say at least we are doing something about it now. if we could not have stopped it before, we are putting in place the policies to make sure it doesn't happen again. deals,ou cover renault-nissan much less likely now? >> automakers are not in the greatest spot, when you look at who would come in and buy them. auto sales are down, even in the world's biggest market, china -- the second-biggest market, sorry. sales have already peter. i'm not sure automakers make the best of targets, but i could be proven wrong. someone could be hatching a deal over the holiday printout.
alix: the next company story on watching is pg&e, run and center of the horrible california wildfires we have seen also in 2017 as well. this is a fundamental question of will the state let the company basically go bankrupt, or will they force them to break up and make shareholder or board changes? nabila: that is a fundamental question. reservation.ate alix: wow. nabila: breaking up is all the vogue at the moment. that is something that you could see them having to do, absolutely. alix: our third story is amazon, getting some data, reportedly the company is saying record-breaking holiday with prime. they even had some issues with echo because there was so much activity happening. nabila: like at your house. they no longer worked.
but i need my timers. nabila: one of the adjusting things about this announcement, i love how they can get away with not providing actual numbers. there are no numbers, they shipped a billion items, good on you, that's great. apparently tens of millions of new prime customers. but i'm sure investors would like to know what all this translates to to the bottom line, or even for revenue. interesting that they keep getting away with not providing that. alix: maybe not for long if the sec has anything to do with that. coming up, looking for retail sales. ax ceo.ed to the former s this is bloomberg. ♪
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"all sites are green." all of which helps you do more than your customers thought possible. comcast business. beyond fast. unstopand it's strengthenedting place, the by xfi pods,gateway. which plug in to extend the wifi even farther, past anything that stands in its way. ...well almost anything. leave no room behind with xfi pods. simple. easy. awesome. click or visit a retail store today. alix: this is bloomberg daybreak. i'm alix steel. welcome. remember monday, when it was bad? maybe that has stopped. .12 percent.
issue and are moving supply chains away from your old supply chains, how do you then spend the kind of money you need to spend on technology as well, will terrence diverts him of that spending? issue forbig retailers because you have to keep the stores fresh and you have to make the investments and analytics, technology, to be able to play in this on the channel world. where i would argue is stores will not go away. 87% of retail. it will continue. in you to play both in the internet and in the stores and be able to do that by online, pick up in-store, and give that on the channel experience to the consumer. s are a killer for retail the matter how you play it. situation. i believe the good retailers are not dealing with a secular issue of retail being bad. retail and the consumer shopping, they will continue to shop. they have to continue to evolve
in this on the channel world. they have to have a margin structure that allows them to make both the store and analytic investments. they have got to continue to evolve into this world and the investment, they have got to have a margin structure that allows them to make the investments. alix: what was your favorite gift that you bought? >> i think we bought a lot of gift cards. that was our gift for the season. alix: thank you very much. whatt to get an update on is making headlines outside the business world. and south korea staging a symbolic groundbreaking ceremony to upgrade railings between the countries.
they were destroyed by the country and were revived early this year. council -- thety u.s. allowing them to proceed despite sanctions on the north. china says all businesses will be regulated equally. the government has released new rules that go into effect immediately. the most sought after industries are still subject to government changes could create competition for state owned companies that dominate the economy. years, first time in 30 japan will resume commercial whale hunting because stocks are high. japan announcing it is leaving the commission but it will the longer go to the antarctic for its annual killings. the country switched to research whaling after a moratorium was opposed -- was imposed in the 1980's. global news 24 hours a day and at tic toc on twitter, powered by more than 2700 journalists
alix: this is bloomberg daybreak -- viviana: this is bloomberg daybreak. i'm viviana hurtado. coming up in the next hour, the quad capital chief strategist. i have your business flash. japan doubling down on its stable monetary policy. da said growingro risk overseas are good reasons for sticking with powerful, sustainable stimulus. in a speech, he also cautioned against too much pessimism, saying the global economy should be strong enough to withstand a shock. exxon mobil headed for's worst annual performance since 1981,
down 20% and things could get worse. the decline comes as exxon pursues one of the largest restructuring and its history. the company is making a pitch for oil in south america and natural gas in mozambique. the top 10 york, apartment sales for the year have combined to top $500 million. that may sound high but those numbers are down from the previous three years. sales wereof 10 discounted from their original prices. one apartment took a $17 million price cap before it found a buyer. that is your business flash. alix: a $70 million price cut. the hedge fund industry is in the midst of a slowdown not seen since 2008. is this the new normal? joining us now is the merrill lynch alternative investment cio
. whatould have looked at was happening to the housing market and we would have known the hedge funds were not doing very well. up inare we in setting terms of hedge funds? >> we are coming off of a rough going of flows and we are to be seeing somewhere in the order of $15 billion withdrawn from the industry. alix: for 2018? >> 2018. we can look more forwards. that is going to be a big factor, it is coming out predominantly from multi-strategy funds as people have greater expertise in individual items. you have two realities, investor and market. investor reality, when we look at something like the average equity hedge fund --
hedge fund is down around 11% or 12% this year. the stock market outperform by 3%. we captured 90% of the downside of the market. , thethe last three years equity long and short space is up basically zero. the stock market is up. when the market goes up, you have made nothing. when the market goes down, you have made as much of the market. the reality is, you look down the list over the last three years and it has been a dismal december and i get that. an index that is in double digits and it is bad for them. they are going to say, i have made no money. alix: what does that wind up meaning on the stocks that are owned by these hedge funds?
facebook,microsoft or what areas get hit? guys gote hedge fund hit heavily in 2015, there was a lot more crowded trades. the microsoft,, the apple, the positive side is you can trade in those in an infinite amount. it is harde side is to look an investor in the face and say, i found this company. a used to be called google. use it there and go, are you -- to haveut someone someone put you in microsoft and google. is tricky, unless the person sold out in time and got out of some of the others. they haven't. an exciting picked
stock and you have not hit it out of the market in terms of timing. what is your skill set? that is a part of the challenge. alix: let's go to 2019. what do you base your outlook on? what is the deciding factor? fabio: the macro picture. the overall, big picture. , at thehe things biggest level, we can look at across the market, what we're seeing now seems extraordinary. when you pull up the overall , but they, not the vix actual volatility that has occurred, what you find is we have moved back toward the middle of the ranges and that is a factor. this is the new normal. in reality, for a lot of these
hedge funds that are addicted to , when youolatility buy a high-yield bond and you short the treasury, you are short volatility. stock,u buy a small-cap and short the index, you are short volatility. making money while long volatility is harder and that is at the micro level a big factor. big one.is a when we look across the markets at corporate profits, they are flat since 2012. if we look back at the federal reserve indices, i'm not sure how heavily in the market that is, corporate profits overall, before tax, without any form of withholding, are flat to 2012. that is a surprising number two people.
some of the s&p companies have done well. corporateeral case, profits are flat. it is going to come down to tax policy and that has been corporate friendly. of november,nts one of the big things before you ,ound like a trump supporter who on earth would think that now, with the house changing hands in days, that corporate profits and tax policy is going to become more friendly? nobody. this administration has effectively done -- is effectively done for the next two years. part of the biggest role of an asset manager is not to worry to sit andshould be, say the fed should do this or congress. it is super euro what they are
going to do and what they are going to do is do the best they can to stop this administration from getting anything done. one of the things this administration had done is how corporate tax policy. when i look at that, i think corporate taxes have been rising due to government and tax policies, shifting the burden. that has been a plus and that is likely to go away and that is not going to change. alix: it is not a happy view of the industry. you are probably not feeling very good about your 2019. good to see you. always a pleasure. coming up, who had the best holiday? first up might be amazon, reporting a record-breaking season. this is "bloomberg." ♪
been record-breaking. more items have been ordered than ever before. joining me now is a reporter from bloomberg news. >> it went across the board. amazon talked about its device sales. , about brands that work, like calvin klein that have developed partnerships with amazon to sell the original products. it is, amazon continuing to be amazon. of how strong the u.s. consumer has been throughout the season, especially in apparel. alix: you by the brands. there is that. more than 50% of items were from small and medium-size businesses that would not be a brand name. >> that is a great thing to put in a press release. sells a lot of things
they are making themselves. some of that maybe that as well. i think, look, they have done more deals with companies small and big to sell products and advertise them as people are searching through the site. off dividends not just for amazon but it's partners. alix: apparently, it was lagos superheroes and shampoo. -- it was lego superheroes and shampoo. coming up, a call on whether or not you should buy the dip. this is "bloomberg." ♪
new the end of the bull market, the s&p longus rally on an extinction path. oil market stability is coming. andwill be quieter in 2019 the possibility of a meeting after brent hits below $50. calmdent trump tries to markets and back steven mnuchin in, calling him smart. all of that helping the overall feel to the market. futures up by .8%. it was a brutal day monday. the euro-dollar flat. the dollar is stronger today. the dollar-yen snapping a losing streak. crude uper