Dartmouth, just a few minutes from now. Lets get you caught up on some of the top stories. One of the most serious crises on the Korean Peninsula in years, talks between the north and south are in its third day of talks. Demands that south korea and the propaganda broadcast. Harry reid has come out in favor of the Iranian Nuclear deal. He was one of the democrats who hadnt announced how they would vote. Upma has been trying to line enough lawmakers to make sure it doesnt get killed in congress. Today the french president franceshree americans highest decoration. They prevented what could have been a mass shooting on a french train. The gun man would have been successful is my friend had not gotten up. I want that lesson to be learned going forward, in times of terror, do something. Moroccan gunman is a who had been flagged as a radical islamist. Hiringe is planning a binge on september 9. They will add 4000 employees. The Restaurant Industry has been struggling to retain staff. Chipotle hopes to entice new potentially earning sixfigure salaries. Davis love the third became the pgawinner of the window. Tiger woods finished four shots back. Those are the top headlines. But we must return to the markets. These are the five things you need to know. Julie hyman is helping me kick things off. This was precipitated by the unexpected devaluation in the chinese yuan. Its chinese stocks fell the most since 2007. Down more than 8 at the close. Point, the shanghai, was up 60 on the year. Seng was, the hang down 5 . Curran with us. Havething the chinese attempted to do has failed to prop up the chinese market. Sign that the chinese have plans to do Something Different or perhaps more of the same in the weeks ahead . Whatever they try next, they better hope that it works. It hasnt. They can do a lot more. The can step in through regulator. They could intervene in a way that is through the market. Julie can you describe to us the mood of the regular chinese there . People who have invested and are seeing their gains also way . However, the overall net effect on the real economy is a moot point. Of investorsumber is a small part of the population here in china. The net negative effect might not be as bad as people say. However it is hurting consumer confidence. It is not what the government wants at a time when the economy is showing. Is slowing. Erik especially after the president had advised the chinese that the stock market was an attractive investment. That was enda curran, thank you very much. I want to add that the evening 4 ures is down more than this morning. Two, we have a big deal announced. Southern company is buying agl resources. They are spending 8 billion in cash to gain a stake in the gas distribution business. Both stocks are trading a little bit higher in the premarket. What agl used to be . I dont think so. About 33 . Are up agl is down 12 year to date. 12 year to date after a big drop last week. Thanern company is higher any price it has traded at this year. Done ondeal is getting a monday after a selloff. Answer aa data question. They wither on the vine until the markets stabilize . Anecdotally, no. Julie in this particular case. Oil is slumping, dropping below 39 a barrel this morning. You can see here that nymex crew is now trading low. Is oil that is down near 30 since may. This underscores what is happening in the commodities market, roughly. Oil appears to be the one we are focusing on. But we could look at copper, agricultural commodities, and we are seeing similar patterns everywhere. Julie i saw something about oil being the leading indicator. Market is only now catching up with oil. If it still is a leading indicator, it should tell us something about where we are going. Number four, donald trump went after hedge funds. He said by making a fortune and not paying taxes, they are getting away with murder, sounding a lot like some of his competitors in this race. Erik i feel like Donald Trumps being leftare worth to speak for themselves. Julie so no comment, is that what you are saying . By most measures, the dollar has been moving sideways. According to an index that the fed created to track the dollar, it has been surging versus 26 of americas biggest trading partners. Instead of you and i talking about this, we are going to do this with peter fisher. , and beforelackrock that he was with the fed. It is great to have you here. Peter thank you. Erik so many questions to ask. But the most important is, does what we have seen last week and today with the futures down more than 4 take a fed hike off the table . Peter it changes the calculus. The fed has to stop and think about it. Is this showing underlying weakness in the economy . Erik what do you think . Peter i dont know yet. We know we have been pumping up asset prices and equity values. Andpush them up high enough they are bound to correct. I think we have to posit a minute and think about this being a consequence of qe. I hope the fed looks at the underlying data. The underlying data is good, employment is doing good. See aso you would like to rate hike in september . Peter i would like to see them get it off their chest. It make itould complicated . If the feds job is to study employment,d job why would it prevent them from pulling the trigger in the way they would like to . Because Monetary Policy only works by influencing conditions. That is why it has been so odd that the fed has said Financial Stability is someone elses problem. That is the only way we influence, we need a transition mechanism. If this goes on another three weeks, it would be a strange time to raise rates. But i hope they look at the underlying strength in the economy. , china and thece emerging markets are slowing u. S. And the developed markets are doing well, so we are getting divergence. Where theyive to have been, not to history. Peter yes. But now we are seeing the chinese slowdown is for real. No one can say they are going to pull a rabbit out of the hat. That is bringing things into focus. Side, we have the productivity slowdown. We have slow productivity data. The fed hase that, to be worried about whether inflation is around the corner. Maybe we dont want to believe that data, but the fed has to pause, janet yellen in her speech spent some time talking about the productivity puzzle. It has to be on their mind. Erik if you were an Equity Investor, what would you be looking at right now to inform you about the direction of markets. Are you looking to china . U. S. Economic data . Peter iamb looking at the u. S. Economic data. If the Economic Data were to we are bad at predicting recessions. If that were to happen, it would make me nervous. Good. Far, it looks as far as income, employment, and housing. This drop in seen confidence on the part of consumers and ceos. Peter yes, but we have to wake up to the fact that equity values. Very high. This has been an amazing bull run. Erik but peter the Equity Investor has to recognize what a Great Bull Run it has been. Erik i will take this opportunity for a quick commercial break. When we come back we will continue the conversation with peter fisher from the blackrock institute. You have a look folks, futures are down more than 4 . We are headed for another drop in the how industrials. In the next hour we will be who sayso doug ramsey we could fall and other 50 from where the s p fell on friday. Stay with us. Erik this is Market Makers on another big down day. Unless you are looking at government bonds like treasuries. People are rushing to the safe havens. We returned to our conversation with peter fisher from blackrock. Also from the school of business in dartmouth. Easing, wetitative were talking about when and if the fed was going to be able to raise Interest Rates. But lets look at the past five or six years. If we look at the performance of markets last week, and the fact that the s p 500 is now act down to the level it traded at in june, 2014, what does that tell us. Peter it tells us about uncertainty in asset prices. This theory is that they are going to create a wealth of fact and make uss feel better. We would hope that that leads to more employment. Erik would you call that a failure . Peter i think that is very speculative. Erik if we are talking about the efficacy of qe in the United States, couldnt we be talking about whether should be pumping billions of euros into the european Financial System as we speak . Peter qe is over here. Very much alive in europe and japan. Peter what is the endgame . If we keep pushing them up, the most likely thing is that they come down. Equities seems to be following the oil prices. So when we push things higher and higher, the Central Bank Theory is that if we keep pushing things higher we will get to a better place. But actually, you make it more likely that it will come down. Erik lets talk about china. China precipitated this selloff. What do you think is really going on inside china . Can it fix the market problem . Peter they should try not to intervene. It was the great temptation to buy equities to stabilize the market. I used to be in charge of foreign intervention for currencies in the United States. If you start buying, everyone comes in and sells. The currency market, they still have some capital controls on there. So the equity market was a pure experiment with intervention. The underlying issue is that the prior chinese leadership that step down three years ago, they waited too long to open up the currency market. And this leadership is trying to play catchup. Erik what does this mean for emerging markets . Peter china devaluing is not good for the markets that compete with china. That is a big news item. For the Chinese People rebalancing from investment to consumption led growth is going to be great when it happens. It will come gradually, it will be difficult. The real challenge is on everybody else who has been that go intodities their infrastructure, that is what is weighing on the emerging markets. At the yieldoking on the 10 year treasury. Given what we know right now, today, does that make sense . Peter unfortunately it does. Because we have pumped up values so far, people run to the treasuries. Erik does it last . Peter what worries me is that the fed has lost influence. Erik i think we should always be scared of that. Peter fisher, a senior investor at the blackrock institute. Coming up here on market day later this morning, we will have for aoff who has third time. Does he feel bullish . We will find out. 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As far we make of this as where volatility will go next . What is interesting is the movers this morning. It would not surprise me to see out of the gate this morning. The spike that we have seen in three days, i see this as a point of capitulation here. 600 points is a massive move. 2011, we saw to vix over 40. Saw bigthe last time we futures there. That we have seen is almost unprecedented. The fact that we get this much in three days, and in a week, the largest gain we have ever seen, if we get any news from our fed out of china about another sort of qe or the china bank doing something, i would not be surprised to see fixed futures trading back below 20. Julie bold call. It has been a lagging indicator. We have seen the commodities selloff. Is there somewhere we can look universe to get some kind of predictive mechanism . Take a look at the term structure. To approachly going 35, maybe even higher. But there is a lag. The fear is for the here and now, it is not going for, 6, 8 weeks. There is going to be some announcement, whether it is will yellen saying that we not raise rates, or news coming out of china, the fear is fourth this week. Going out, not so much. Are you shorting the vix right now . I am buying the put market the put options. That to where they are trading, you look at what the skew is, and the put options are pretty cheap. That is where i would put my money. Because i know what the risk is. That is where my bet is. Julie all right, that was scott bauer with a little bit of hope this morning. He is joining us from chicago. Erik that was julie hyman. Right now it is time for our top stories. There is a takeover this morning, the Southern Company for 8eed to buy agl billion cash. Southern is a public utility holding, and agl is a national gas distributor. Down. Ia is citigroup said it could get worse, with oil falling to 32 a barrel. Out has said it will put oil at any cost. Joee is speculation that biden will enter the president ial race. He met with Elizabeth Warren, she is a rising star in the Progressive Democratic candidate who has not endorsed a candidate. He is talking to Elizabeth Warren who has incredible ideas on how to make the economy work for everyone. I think it is no surprise that he would want to talk to someone like that. Erik no Public Comments from biden or worn. Movie aboutctures over 20roup took in billion. We have more to come on the markets, it is a bloodbath. The dow futures are down more than 583 points. A are in the neighborhood of 3. 5 drop. Is getting00 whacked. We will be back after this short break. Erik in london, the selloff continues. You have heard a lot about the point drop. Stocks in europe are getting hammered. The stoxx 600 is getting hammered, falling almost 5 . That is the worst drop. London,hecking in in can you give us a little bit of what europeans are talking about . China, andall about whether that is going to leak into growth. What is the main concern in europe . There is concern over slowing growth in china. There is also an element of panic selling here in europe. The selloff that we have seen here today has been deepening. Had its worst drop in four years, today, earlier it was heading for the worst day since 2011. Now we are looking at the worst. Ay since 2008 the stocks the stoxx 600 is already in correction. 100, we are seeing that head for its lowest level since 2012. No National Equity benchmark is immune. All of them have dropped today. This in the midst of bloodbath, the strengths of the euro is back up to 1. 15. That has been one of the big winners today, looking in europe today. That is because all of these concerns over china, the big question is about when the Federal Reserve will raise rates. Goingre off set that is to happen in september, and that has made the europe and the yen more appealing to the dollar. So we have seen the euro rally to 1. 15. Erik thank you so much. We have talked about equities. We will return our focus to the united said. The United States. Mike, you have been reading this morning. What is standing out to you . This feels like a very sharp correction this last thursday good fourut this is a months since we have seen this kind of drop. If you crunch numbers around this kind of idea, it is the longest it has taken the market to fall 5 . What does that mean . When you, any instance try to go back in history as look at Something Like this, it is a little ridiculous. But if you look at that type of dipping, an elongated finding that it is bound to be at least a correction, at least a drop of 10 , between 10 20 . But he doesnt see it going into a their market. Every instance like this is unique. Erik the past isnt a prologue. Lets talk about valuations. I wont call it a correction i guess it is a correction. The underperformance of u. S. Here, is a big expansion on the basis of fridays close, in see that the s p 500 did some back mass. Hold, andimates futures, the decline we see in futures plays out, that will correct further to 15 times. Which brings us closer to the fiveyear average. Bethe markets will appear to inexpensive. Is, does this cause you to be skeptical about those estimates . Peaked, when the market valuations were above average but still reasonable. But, you remember, Bank Earnings were gone. Is, with thison type of market drop, is it the type of thing that will make they arent comfortable buying a car, a house, im going to pull back. On howwer will depend long this lasts. If this is a prolonged threat of weakness, the threat to the United States starts growing. But if this is a sharp dip, it is like pulling off a bandaid. Sometimes you get a quick ounce back. 1998, we hadt sharp declines, the market was back to sea level by the end of the year. So are we looking at a long, stretched out drop . Or will it bounce back . Erik what stocks are you paying particular attention to today . I was looking at what stocks. Re up today i couldnt find a Single Market up in a premarket trading. Some penny stocks, some pharmaceutical and biotech stocks, but the higher you get, the harder it is to find a stock. Looking at some of the big amazon,starbucks, and banktlife, forward of america, they are all down 5 in the premarket. We are not looking at stocks that are down 20 , it is not a concentrated problem in a sector, this is a sell everything market. Started talking about yet, what this looks like . Does this look like 1998 . A lot of people have made that comparison. It started with emerging markets. Apart. Y pegs fell erik and then the sustainability gets called into question. Right. This, the oil part of it was on the front end. The similarities are there. A lot