Transcripts For BLOOMBERG Bloomberg Go 20151210 : vimarsana.

England keeping rates at a record low. 5 , where they had been since march 2009. The division was interesting. The sold a center, he has been the sole dissenter. He has voted for an Interest Rate hike will stop what is interesting, some of the comments in the minutes that accompanied the Interest Rate decision. The bank has domestic spending subdued, overseas demand. The officials within the bank of england say they have a range of views on inflation risks. This is a big one, the Oil Price Drop suggests continued subdued inflation. Interestingly, since the last meeting of the bank of england at the beginning of november, brent crude has sunk i16 percent. That puts downward pressure on inflation which, as you know in the u. K. , is negligible, down to. 1 . The bank has cited in the past and emergingact markets impact as well. Those are the two impacts weighing on the u. K. Economy. The domestic economy is resilient, as shown by the latest gdp data which grew by. 5 . But i think the big take away from this is the Oil Price Drop suggesting continued subdued inflation, which basically means , guys, were not want to see any rate hike here in the u. K. Anytime soon. Stephanie seems like business as usual. This is basically what we expected. Is. T before todays release, we have the markets forecasting the Interest Rates them and not until at least january 2017. The economist have been putting back their expectations for the first rate hike for the november meeting we were looking at the first quarter, now were looking possibly the Third Quarter of next year. One, the strong pound. Two, the weakening inflation. Can you rate hike when inflation is close to zero . That is the big question. The strength of sterling as interesting as well. Since the last boe meeting, the pound has fallen by 2 against the euro after the ecb didnt bring out its big bazooka last week. The bank of england will be pleased with that. But dont let that dissuade you from what has happened to the pound versus all its currencys on a trade rated basis. This year it is up by 6 . In the last three years, up by over 20 . The pound is pushing down on inflation. The pound is affecting the exporters prospects as well. We have a very lopsided economy here, guys, all about domestic demand, manufacturers are suffering, construction makers are suffering as well. The bank of england doing as we expected. It is a bit of a snoozer after the smb in switzerland did nothing earlier. I was just looking at the wirp function and what it shows us is the futures market expects the probability of a cutout with a probability of a hike until may of this year. In fact, there is not even more than 50 chance of a hike until november. So it is interesting that the futures market sees the bank of england as more dovish than hawkish until basically a year from now. You set a great point. There is a member of the mpc called and are held in, the chief economist. He has gone out on a limb in recent months and said the next move in Interest Rates here, not only could be up, but it could be down. By the way, he is the ultra dove on the mpc. He is out there. He is an outliner. Every member of the mpc to move in ratesxt could be down because of the lack of inflation, that troops your point that, you know what . The markets have got it wrong, economists have got it wrong. We have been putting back interestrate expectations for the better part of the last two years since kearny joined the bank of england in july a couple of years ago. The rate expectations are telling us we are not probably going to see a rate hike next year, even though carney told our very own john nichols after the quarterly Inflation Report that we should get ready for rate hike in 2016, just because we are ready for rate hike in 2016, guys, it doesnt mean were going to see one. Just look what they said about oil prices, subdued inflation, that means, how can a hike in the nearterm . Stephanie Nothing Better than delivering us, your words, a snooze fest and saying everyone is wrong. What a great way for us to start our day step mark barton joining us from london. Lets take you back to matt miller. What are futures doing . Matt futures are up across the board. We had a rough time the last couple of days, now looking at again on the s p, the dow. Ooking at 46 point gain if you take a look at oil, that is probably the most volatile instrument that we have been watching in the markets since friday. It came out today that opec has raised its production to a record high. We see oil coming down again but incredibly volatile going from 36. 5 to 38. 5 in the last 24 hours. I also want to point out on my bloomberg terminal the rand. In interesting story going on in south Africa Thomas jacob zuma has fired his finance minister. The rand has weakened against the dollar for the sixth straight day. You can now buy 15 ran for a dollar where week ago was only 14. David joining us for the hour is carla harris, vicechairman of the Global Wealth management at Morgan Stanley. Welcome. Lets start where we left off. What are your thoughts about what we just heard . I think it was consistent with what the market expected. When Something Like that is delivered consistent with market expectations, he was the generally a positive reaction. It is a surprise the market doesnt like. I think the boe doesnt want to do anything that upsets what appears to be to predict economic environment. Stephanie does it seem from your perspective, sitting in a private wealth seat, do you think globally it is in improving economic environment . When we have had so much centralbank intervention, it is difficult to get a real picture. When you think about what happened in this country with our economy, people said, well, it is not improving but little by little you started to see the labor numbers improve and started to see no real impact on inflation. All of a sudden were saying, we are in an approved economy. People were very cautious to admit that when we were along the way. I feel like that is what is going on in europe right now. Us forcarla will be with the entire hour. Now we turn to volkswagen. The company said yesterday the number of the vehicles with mr. To Carbon Emissions for years is much smaller than priestly thought. But despite that, the automaker says they will be defending will be no easy task. Spoke with the ceo. Was this a ceo who thinks he has turned a corner . Ways, he was much more confident that i expected him to be. He was basically talking about how theyre going to move for, regain trust, but on the crucial question of whether or not they are going to dispose of any assets, the 12 brands they had out there, he said they werent going to do that. This is the ceo that is confident enough not to sell any of his assets. Excellent brands, i should add, and in their entirety, they make up what we call the Volkswagen Group and were very happy and glad and nothing will change in the coming years. im glad you mention the co2 and nitrogen oxygen distinction. What they think they have in europe is theyre getting close, working with regulators, four affixed to some 9 million vehicles. Some nineix to million vehicles. Using the suggest the fix was 9 million diesels in europe could in fact be easier. One issue, where still we assume that 11 million vehicles over the worstcase and arial worldwide to talk about, out of which about 9 million will be in europe. In theze may not united states. Month,t the end of the the end of november is when their Amnesty Program ended for whistleblowers. They said they had a total of 100 whistleblowers come forward but they did not learn that much. Meanwhile, the review outside Firm Jones Day continues. They expect the final result sometime next year. Matthias mueller indicated he is likely to go to washington and make his first trip to the states at the beginning of next year. Stephanie thank you. Hans nichols joining us from germany. Carla, we have to ask you, what is your reaction to this . This wasnt like a mistake, this was a decision made by executives in his organization. How do you recover . I think the ceo is doing the right thing a basically disclosing everything that they knew, when they found out and putting it all out there because that is the most important thing that you can do any other crisis. First of all, disclose it, own it, talk about how it happened and what youre going to do to try to repair it and be consistent. The report card you put in the marketplace around the repair needs to be something where you can over deliver because that is how you start to regain trust. I said i would do one through five and i did one through seven, do that again and do it again some consistency around your performance. That will help you to start to repair the trust, especially name is powerful and valuable as that name. Stephanie or was that powerful. We have carla for the whole hour. That miller will be speaking with the ceo of one of volkswagens brands today at 10 45 eastern. You get to check out the terminal today. Quote of the day. This is from muhammad ali, the man who has no imagination has no wings. That is a very special quote from a fantastic athlete. My favorite is mike tysons, youve always got a plan until somebody punches you in the face. , investors like glencore played a reduce their debt, but theyre not stopping there. More on Company Investor days ahead. David welcome back to bloomberg the glut is not going away anytime soon. Opec says a rose to a threeyear high. Contending strategy to protect market share put pressure on other producers and the price of Oil Continues to hover around the six year low. General motors ended up paying less than expected to settle cleanse for victims of its faulty ignition switches. Less than 600 billion. 101 and four people died in 124dents linked to the people died in accidents linked to the ignition switches. Gm paid less than 10 of claims omitted. Record winning streak, the Airline Trade group iata says 2016 to advice 10 in set another record, more than 36 billion. Carriers and north america are leading the way to make counting for more than half of total income. Stephanie thank you. Time for little global go. Investors are liking what they hear of an old favorite, glencore, announcing plans to cut debt further must go back operations, and consider selling more assets. Lets bring in ryan chilcote. He is been following the story. Were listening to this Debt Reduction plan. Is the main reason why the market likes it simply because glencore is getting back to its roots . They were proven the best in class traitors in the commodity space, but never operations guys and that is what has tripped them up. I think the reason the market likes it is because theyre planning on cutting debt more aggressively than they previously sort of indicated. Now theyre talking about cutting her net burden to about 18 million if theyre lucky but in of next year. That at glencore stands at 30 billion, the single business biggest debt you will find at any Mining Company or commodities trader in the industry. Theyre doing it in a traditional an obvious ways. They want to cut costs to the tune of 1. 59 over the next 13 months. They want to sell more assets. There talking about raising as much as 4 billion in asset sales as opposed to the 2 billion there were talking about about a month and half ago when they first outline strategy. David explain it to me. They were basically a Trading Company and bought a lot of minds. A lot of they debt was to buy the minds. As i read it this morning, it sounds like the debt theyre cutting is actually the leverage in their trading operations. Is there a danger here they may be actually cutting back on the part they could make money on . There is a danger. That is the tradeoff. What the ceo of the Company Wants to do is make sure his funding costs dont rise and theyll only way he can do that is to cut that. Too much, you can cut debt. You can be too aggressive in your cutbacks. That can cut into the amount of money youre going to make, particularly, for example, in the commodities trading side of the business. If you look at what theyre forecasting in terms of pretax profit for next year for the commodities trading business, talking about 2. 4 billion to 2. 7 billion, just last year, that number was about 3 billion. You are already seeing signs that while they cut back, that is good on the debt side it also hurts their profits. Stephanie carla, is this the ultimate in style . Would we look at 2007, 2008, 1 of the problems, they pushed outside expertise. Glencore clearly knows the commodity space well, that where they have lost their group is simply not being traders and investors and instead you can operators. I have to say, i think this is not so out of the ordinary. It is sort of Corporate Finance 101. In a tough and vomit, the business you tough environment, the mining in this case, if you a lot of leverage, it restricts your flexibility. If you want to make sure you can continue to operate in a tough environment, give yourself some flex, give yourself room on the debt side. Theyre setting themselves up that continued flexibility of the market continues to be tough, and also gives them the ability to be aggressive if this market continues to beat have been buying other asset that they need to because theyre also raising cash. Stephanie few are backed into a corner as youre faced with margin calls, it is impossible to be your best self. Impossible. Tough. David tough. Down 3. 7 billion in personal wealth this year. Your head around that. David he is legendary. Stephanie that is a lot of money. David ryan chilcote, they could for joining us. The chairman of bloomberg lp is a senior independent nonexecutive director of glencore. Next, the u. S. Justice Department Think that maybe zero in on yet another Global Banking scandal. David welcome back to bloomberg investigating potential fraud in agency sub sovereign and bond market. Sources close to the investigation say londonbased traders may have colluded to fix prices on debt issued by entities like german states and the world bank. Our own keri geiger joins us now. What is the scope of the project . Basically, a followon of several other now closed and settled investigations and active investigations the doj has into what traders are doing on chat rooms on her desk. Basically, are they sharing client information with each other, which could be, as you know, colluding to fix prices which is an antitrust violation. Now the whole scope of how this investigation started goes back to many of these other investigations they started with fx and Interest Rates. This covers a 9 trillion market. It is a pretty big Product Group are looking up. And libor and fx no one to this one. I was saying, peace to defend antitrust cases in the 1980s, but it was hard to prove unless someone wrote a memo. Now in the world of the internet these chat rooms are basically amazing tools for prosecutors. They can go back and mine through the very easy to find evidence if there talking about client words and colluding to fix prices. Thanks, about 2014, in the middle of the fx investigation, which is chatter how those banks and traders got in trouble for that, they shut down the use of basically group chats so you can do it anymore. It could still be going on by many, many product desks. Investigations into treasuries, into the oil desks, and investigations into russias metals. It is a common theme depending on what the product is. It doesnt really matter at the end of the day. Stephanie how about going after individuals . We havent seen individuals prosecuted. Just this week, we heard about the mortgage salesman from jefferies and his case was thrown out after he was convicted. That case kind of threw a wrench and what people consider a Good Progress in making prosecutions. We did see two libor traders convicted last week for this type of activity. It is a mixed bag. People are still disappointed. Stephanie Good Progress if others are actually guilty. There is the risk there is so much populist push to go after individuals, but maybe the individuals that have gone after art the right ones. I take you to a 28yearold goldman sachs, how could he have been the mastermind taking subprime down . I think that is why see the hesitation to take individual cases forward. Unlike big bang settlements, theyre hard david to prove and you have to prove them in court. David carla, how does a bank prevent the people from doing this . I think you have to have good controls in place and make sure it is clear about the organization what is acceptable and what isnt. David are they doing enough . I think theyre being very aggressive. Stephanie was that the case five years ago . No. A given the apartment were in, people of double down or triple down on the control measures. Stephanie thank you very much. Talkwe come back, we will surround us. Can the ceo dispel concerns about the company . I hope so. She is kind of a superstar. Watching bloomberg go, that is one heckuva shot of midtown manhattan. What a view. What i guess we have today, carla harris, the chairman of Global Wealth. I would like to say every single time i announce that correctly, i feel like a champion. Lets get some first word news. One of the shooters in last weeks california plot may have thought of the attack as long as three years ago. A longtime friend told authorities he and the suspect had plans for the attack and often assault rifles used in the shooting. Congressional negotiators are moving closer to a deal that would make something expired tax breaks permanent. The lukens want to avoid a repeat of the Government Shutdown in 2013. Congress is likely to pass a temporary spending bill tomorrow. Officials in beijing have lifted the red alert from yesterday. Rose for open to all traffic. You can get more on these and other breaking stories at bloomberg. Com. Tom, you are clearly here for. He morning mustread tom this is smart, opinionated commentary from qualified adults. Mergers and accusations used to be simple. We have a number of qualified people on the set to discuss. I really wonder what are we doing . This seems like a sign to me of people really stretching to try and make their earnings and make their compensation for the year when we start doing these megadeals. Am curious to know what you inc. This means about the markets. Are breaking a company to the we can break them up in the pieces, i dont see how this. S a Growth Strategy sheelah occasionally government government comes in a block block some of these deals. The points it is making his as we are spinning up his countries, we are giving up an advantage of being able to allocate capital. Ever wanted or might be a foreign puppets letter to share helpless shareholders or he said we are outfitters of capital, is there a risk to these Countries Companies that they will be able to reallocate capital . Carla youre right, you see these cycles happen anytime you are in an environment with low Interest Rates and lots of cash. We have been in an environment where companies are stockpiling cash, not willing to take the risk. Now that they are feeling more comfortable, you are seeing a boom in m a. They are buying assets that are consistent with what they are telling the market about their go forward strategy. Sure Morgan Stanley is facing this as well, the single digit World Everybody is reacting to this, is it a benefit to your investors to have these animals merge . I dont have a smart answer. Carla by definition, if you are making the decision to merge, that this is the best use of the capital and above all the alternatives, whether it is returning capital are raising dividends, this is the best way to raise a shareholder value. Tom are they your friend at Morgan Stanley . Sure jim logan is a big client, but could one make the argument that this is Financial Engineering mania and if they are going to go along anything or anyone, it is Investment Bankers just cutting and chopping up to put something up and bring it back apart, it does not seem like there is something a strategic happening. And lawyers. Theyve shown that it does not over the longterm help shareholders to have these megadeals. It is a bit of a repeated story weve seen before, but if you look for 10 years down the line, they actually decide they had to write out a bunch of different values, they have to start selling things off, this energy did not work, they could not mesh the system. It is hard to protect that because you have a change in economic environment, you cannot look at it when you are trying to forecast what the value is going to be, you are forecasting that based on your knowledge today of what you think the future is going to look like. Tom what ive learned in the last 24 hours is that dupont and dow, very little overlap, dupont is a true specialty chemical company. Dow is a hugely commoditybased company, there are little bits of overlap, refinery and texas is one, within the Financial Engineering of this step, i think there is a huge mystery and a single sentence pending of the report at sanford bernstein, no one should assume this transaction is done. There was a lot of arguments, not that anyone would argue with Investment Bankers. This is by no means a done transaction right now. That is absolutely right. Now we want to turn to this weeks business we cover story which takes a closer look at era knows as the company deals with affordable labs that like tests that are not as accurate as they should be. What was your impression . Is very the ceo charismatic and it was a great experience to be able to spend the day with her in her lab. Black . You wearing was she wearing black . Sheelah yes. Always. Notlah she said she did want people looking at her clothes, she did not want to worry about what she was wearing. One of the really impressive skills that she has is shes been able to corral a really highpowered brain trust of supporters around her and she has a board of directors that has Henry Kissinger on it, several members of congress, former secretaries of defense she has so the biggest names and in Silicon Valley backing her. Even though they are not in the industry which her company is in, which is blood diagnostics, they are an Impressive Group and she has convinced them all that she is on to something. Beth outsiders have said it is simple, either you have fda approval, or you dont. Sheelah it turns out that there is a little bit of a gray area. The fda typically does not regulate medical tests, they do drugs. They said they would like to regulate tests more because a lot of startups senator demint this. Space. Along comes there in us theranos. They say they want to make it possible to walk into a drugstore without a prescription, get a print on your finger and find out well in if you are going to have things, thisms or could also cut a lot of expense out of the health care industry. This is their promise. Chang satown emily down with someone who is dealt with the transparency issues, specifically on diagnostic testing. In the system she is operating, she is never wired to have transparency people are asking or think that is part of this disconnect that is happening now, is the fda put out guidance or they are trying to regulate that whole industry. That will change everything. This is a pretty important and simple question, and that is, does it work . How does she demonstrate to the world that it does . Tom emerson up to make it worth 5 million. Carla an environment we are in now weather there is a demand an appetite for transparency, that is unprecedented, you have to get in front of these kinds of issues and you have to be proactive in telling the story. You can never advocate the power of your authority to someone else, you have to you can never abdicate the power of your authority to someone else. You have to tell people what you want them to know, whether it is does it work, how it works, whatever she chooses to disclose, disclose it and be consistent. Tom what did the doctors say . Areetting love in they in favor of figuring out all the ugly things of my blood before my doctor figures about . Sheelah there are a lot of doctors who are excited about the potential of this because there are groups of people in the country who do not going get blood tests when the doctors tell them to. It is too expensive for certain people. We interviewed one transplant surgeon at stanford who does a lot of kidney trans went on teenagers and he said if those kids found out sooner that they were experiencing renal failure, they could change their diets and would not have to get a kidney transplant. There is a huge potential, but she has been running a private company, getting a lot of love from the media and suddenly, people started asking hard questions and i dont think she was prepared, she did not have the infrastructure to even deal with these questions. Beth more than love, she had a massive amount of investors. The company balloon, where is it today . Sheelah its around 10 billion on the recent fundraising and that is one of the reasons this was interesting to us, because he thought, there is a big debate going on in Silicon Valley, a big bubble, or is this tom lets be clear about this. I want to come back to the transparency, my understanding is that they changed their approach. Im told that even the wall street journal, which did the negative piece on it, was invited to come in and do the demonstration and the tests and they declined. Sheelah that is what they told us as well, and i have no way of knowing sure. It is fascinating to go there and see the test, but the only thing that is going to convey that this works is a full study, peerreviewed study, going in and getting your own test that tell you about your own situation. Now if i had the test right [laughter] beth i dont think you want to know everything. Your businessk up week issue tomorrow or read it online. Tom keene, we will send you back to bloomberg on radio. There is nothing more i love than three women on this set and one single guy. Talking about another woman, janet yellen, signaling the edges on track to raise rates as early as next week. We will ask carla how she is advising her clients. David welcome back to bloomberg go. Financial markets in south africa have been thrown into turmoil. President fire the finance minister, even wishing to contain they will go ahead with proposals to build Nuclear Power plants and bailout the national airline. Detroit products finished up, 48 vehicles earned its highest rating crash tests, toyota, hyundai and super the chrysler 200 was the only domestic car to win that rating. That is your Bloomberg Business flash. Reserve isederal expected to make a move on rates as early as next week, what will be the impact of the markets that does not happen . Lets ask carla harrah how she is advising her clients. The one thing investors dont like is uncertainty. We ares like clearly going to get that rate hike, so investors are they happy . Just go things they hate our uncertainty and surprise, that is one of the reasons youve seen all of the volatility because people are speculating about win rates would hike and i thought janet yellen had been fairly transparent. Ira member hearing her speak at the Economic Forum of new york where she was very clear that she was not quite confident that the recovery was real and in her mind, when you saw sustained 5 unemployment and no real threat of inflation about 2 , then that might be the time. That is what we see today, so the market expects a very moderate move next week and i think she has said as much about a week ago. Beth does the markets have unrealistic expectations, can they demand an can they demand certainty . That is not Janet Yellens job, and they get angry when they are not spoonfed. A companyther it is forecasting or telling the market what they expect to make in the next quarter, there is a measure of delivering what you said you were going to do or doing better than that. That is how the market is program, psychologically. Anytime you say x and then deliver that or more, you are rewarded. People will be looking forward to a fourthquarter and performance and how that will impact the market next year. David why is that the case instead of getting the rate hike next week and all the uncertainty shifting to next year . Carla i think people understand that if you look at the behavior thus far, the fed is not going to do anything to upset the apple cart. We are way away from that 2 inflation point, so the market is expecting that it will be measured as it moves throughout 2016. They will be watching the dollar and the strength of the dollar because they dont want to do anything to upset what appears to be a decent recovery. I think that people will look, you are right, when is the next one, is it first quarter, second quarter, how much will it be . When janet yellen started this job, there was a big to do about how she is going to communicate more and how that was going to be more trans aaron the and trying to figure out whats going to happen. Done . You think she has has she been has clear about what shes going to do . Carla i will give you my opinion. I felt like i heard her loud and clear at that lunch about here on the measures that would need to be in place, they are there now and it appears we will see action. What we are saying to clients is that there is still room in the equity market. You might want to think about what duration bonds, especially if you expect measured hikes. Move forward, there is still room in this market, you might have some reallocation around japan and europe, but there is still room in this market environment. Sheelah the problem with short duration bonds, they will not pay anything. Carla label payload and more. They will pay a little bit more. Chart onually have a bloomberg it shows that the futures market is betting will happen. ,f you spend some time with us futures and likability, you can see a 78 chance the that is going to hike at this meeting. After that, it took percent chance of a hike, the following meeting, a 40 chance, so more likely and you can follow this chart out, it is interesting, you have to spend some time with it to get it, but i recommend doing that because it is worth it. Carla personally, i would take that bet with you. You think after this meeting and the second meeting, there is a 5050 chance. Carla yes, as you go forward into the second quarter, that is when i would expect to see something. Out here, you get 82 . On the fed,es are but in terms of private wealth clients, does it affect what they are doing . View of the market, it certainly impacts what they may do on a daytoday basis. Anytime you had volatility that weve had, people start to really Pay Attention because you can see it in their statements. As people get more comfortable and the market settles down, people get confident and act more aggressively. When they are not sure whats going to happen, people back down the hatches people button down the hatches. And check this out, carla sheelah are not going anywhere. Carla is also an accomplished gospel singer. She sang at carnegie hall. All proceeds went to charity. Amazing. David welcome back to bloomberg all. Bloomberg go. Carla, lets get your final thoughts. Carla im very constructive on this market in 2016 and people should aggressively think about how to engage in user Financial Advisor aggressively so you can maximize your six yes. I think people should be thinking about how they want to maximize their success in their professional careers. Its the perfect time to take an inventory of your strengths, weaknesses and are gaps and ask yourself what needs to happen by december 2015 in order to say this was a fabulous year. I thought about some of those points in my book, strategize to win. The third thing that i would say to everybody is have a fabulous holiday season. Aboutyoure talking volkswagen and their reputation during this financial crisis. Banks have taken it back to basics, lower their leverage and make money, yet still they are public enemy number one. What are bank doing wrong . Carla all the banks on the street have taken steps to shore up their reputation if you will, with their shareholder and consumer base. With marketing, you have to tell them and tell them again. You have to be consistent in telling the story and consistent inarticulate in the report cards that you know you can deliver on because that is what would help to repair your franchise. Sheelah one thing that banks have a telling us for years is how much they care about diversity. Tell us when it is going to stay when it is going to change. Carla ive been on the street for 28 years and while im the first until you its not perfect, i was how you it is not look like that and 87 i will tell you it does not look like 1987. Giving where given where women are in the economy, Larger Companies are focused on women. Beth harris, vice chairman of Morgan Stanley. Sure, tv has evolved over the years. Its gotten squarer. Brighter. Bigger. Its gotten thinner. Even curvier. But whats next . For all binge watchers. Movie geeks. Sports freaks. X1 from xfinity will change the way you experience tv. Tand thats what were doings to chat xfinity. Rself, we are challenging ourselves to improve every aspect of your experience. And this includes our commitment to being on time. Every time. Thats why if were ever late for an appointment, well credit your account 20. Its our promise to you. Were doing everything we can to give you the best experience possible. Because we should fit into your life. Not the other way around. Stephanie we will hear from vw ceo about the impact from the scan. China putting the brakes. We will get a look at the Economic Outlook or 2016 from the Worlds Largest moneymakers. And the view from 30,000 feet. White so many people are flying private these days. It is part of a shift to the experience of the economy. Welcome to the second hour of bloomberg. The last hour we offered same game so now we are doing tap dancing. Erik great people. David good people. Chief,rg editor and welcome back. Lets start with the first word from david. David donald trump has scrapped the trip to israel. Prime minister Benjamin Netanyahu will not meet with the president of candidate because of his comment to bar muslims from u. S. One of the shooters in last weeks attacks may have plotted and attacked the years ago. They said he had plans for an attack. His friend bought the assault rifles that they used in last weeks shooting. The Pacific Northwest has been flooded by record rainstorms. Tens of thousands of people have lost power. More than five inches fell in portland, oregon, and one person was killed. You can get news 24 hours a day on bloomberg. Com. Now over to matt miller. Matt gains across the board, s p 500 Index Futures and many contracts up about. 3 of 1 . The pound weakening after that decision about. 5 of 1 . The british pound is dropping down. Why dont we take a look at my terminal . I have a fan favorite chart on the terminal. You can type it into your terminal at home or in the office. Is important. We call this sterlings regulation. The blue line is the pound and it rises in value. The white line is inflation. Purchasing power arises as that happens, so interesting chart. You can get it at home. Look at some u. S. Stocks. Solar losers across the board after solar came out with the fiscal year 2016 outlook. Solar city down, trina down, however, sun edison, the biggest loser about solar stocks is gaining after you contracts and read negotiating. And renegotiating. Finally, mens wearhouse came out with earnings disappointed the market and down by more than. 5 of the total value. More than 1 5 of the total value. Stephanie low oil prices and style in which growth would keep inflation under control. The decision to add stimulus in the feds likely decision to raise rates this month. John, you spoke to mark carney not long ago. A product of the decision that got these conflicting monetary policies globally so it is not like they can make a decision in a vacuum and they have to factor in all the decisions . Claims, k he stephanie baloney. John he is genuinely stuck between two huge courses. You have janet yellen in one direction and mario draghi in the other. He is down in the middle and it looks in english, even for canadian, to say your waiting to see what the americans do. There is an element to that. David does it give it more like stability . Because theibility pound weakened against the euro . John it gives him a little bit of cover. David not too far away. Stephanie what do you think . I agree that they are stuck between the u. S. And europe but they might as well wake up on new years day and see what they want to do next. The other dilemma they face is theyre not good at irony. They really have not gotten the joke that seven years of ultraloose Monetary Policy is what created the cycle and energy. On global tailwind deflationary pressures from the Energy Complex is one of the things they are wringing their hands about. The is a consequence of investment we see blowing up and energy patch. Stephanie we have a quick sound about from mark. Mark we have given guidance about the past path of Interest Rates. We have repeated it so many times. It is so boring. It is part of the furniture not, but that is a good thing because that was a call we made in december 2013. Two years ago we made the call and now it is accepted. Of course, it has been consistent. Isently, what we have faced what is the right time of starting that process of limiting gradual rate increase . Stephanie john, that is your conversation. John you could hear me in the background. Stephanie you spoke to him in november. You are not surprised. John in this case, he has ome a more reliable friend boyfriend, he has always been cast as the unreliable boyfriend but in this case, he has begun to telegraph quite well that he will stay in the middle and he has done that. You could argue janet yellen has become a girlfriend like that as well. David it was not only london with news, also, switzerland. Swiss National Bank also left Interest Rates unchanged in the announcement this morning. Jonathan spoke with Thomas Jordan this morning as he defended his decision. Jordan there is no necessary to change Monetary Policy at the moment. At. 75re negative rates basis points negative and there is the willingness to intervene for the Exchange Market if necessary. Twod peter, i have confess, the fed is not focusing so much on switzerland. For people like me, explain the decision. How much is the currency issue for stimulus for this was economy . Peter they have negative Interest Rates out of this was out of the swiss bank and that is the strategy to keep appreciation. Small countries like switzerland and denmark try to avoid currency depreciating through the roof and that is why he feels comfortable leaving it where it is. Why he is on hold is the same reason why mark carney is. They want to see how janet yellen explains the rates. Themystery is how does commanding come together to explain the path . That will influence a lot of things. Stephanie we do say that is what mario draghi said he was basically staying the course but not expanded . Peter he tried to have it both ways, showing consistency and doing anything. I think he is on the verge of discovering what the bank of japan has discovered. When you threaten infinity more than once, it does not really move expectations further. You cannot really top infinity. Swiss bank manager did shock markets. Stephanie nobody thought they could afford to have a cup of coffee there. David Thomas Jordan wanted to clarify that he does not take concerns about currency lightly. Thomas jordan the situation remains very difficult, so those firms who export or on the pressure because of competition, the situation remains very ,ifficult and overvalued significantly overvalued, and that makes a difficult situation. Stephanie the fundamental problem is europe is still feeling major pain. You are not seeing the plain vanilla investors seem great opportunities. They are distressed buyers. If we are saying things look pretty good, they do not. That is why we need all the central bank intervention. John so much of what the markets are doing in europe is trying to work out what Central Banks are up to and it shows it is more investor played then the real economy. Swiss desk have does have strong links to manufacture, especially on the german side. Germany is weakening of it but it feels more robust. David at the same time, we have had more than one Investment Advisor saying they actually think europe equities are a real opportunity and the expect growth. John peter it is a relative value issue. U. S. Equities look pricey comes up on the relative value basis, european equities look more attractive and further to appreciate. Unless we get an acceleration of the economy and revenues here. John i side with stephanie. If you look at the european economy, mario draghi is trying to keep it going. If youre running a company, you are not operating in the same general atmosphere as growth that you have here. Stephanie you are doing it while you are on crutches and you have a patch over your i. Patch over your eye. The fact that we can say greece is a ok, it is ok if you are an investor and greek bonds can go into the ball, but the businesses and people there are suffering. We need to be clear about what is happening. Peter we are having a heated agreement. When do you want to buy assets . They are different questions. Stephanie we have a lot more time. Bloomberg is just getting started. John is staying with us and peter. M. V. P. ,share with you most of the person, Meredith Whitney and alyssa Melissa Meyer in the news. Managing 1800 million dollars. Meredith whitney taking [indiscernible] big comeback. A can Marissa Mayer have a come back . Guess who else is . Volkswagen. Speaking for the first time as he defends market conditions. Stephanie welcome back. You are watching bloomberg. I am Stephanie Ruhle and we are talking volkswagen. The ceo committing to keeping all told friends keeping all 12 brands. Obstacless hans nichols spoke with him earlier this morning. We have taken up this crisisge to establish management, which were forced to do to make sure we can work through that process and clarify the issues. As far as the current state, we with thegood course issues that we need to align. Stephanie i am looking at analyst recommendations, 20 happen to buy, 40 percent at a hold and it is a mixed picture. Those who say it cannot get out of the hole, it does not appear to be the case. John you have this car brand that is symptomatic with reality ability with reality ability with reliability. Suddenly, you have the issues and that is what is difficult. It goes right to the heart about what german thinks of german engineering and industrial power. Of the thingsone that strikes me is he has the difficult leadership problem. If you want to reassure his customers, investors and employees that everything is going to be ok, but to make statements that we are not going to cut any brands or let people misfortuneuld be because what if yes to go back and make the decisions . Peter you are trying to make sure your sales force, dealerships, employees stay with you and then you can decide what you will restructure later. John i think this is particularly true at volkswagen because they had always had the brand, it has had called for years with different versions. Yearshas had golf for with different versions. Stephanie we talk about this all the time with management of people, but if they pay their employees more and say it will be fine and if they sell is the same cars with a discount, are we going to get over it . John you might, but there will be a lot of people annoyed and there will be a compact of trust. Stephanie and as people talk about it at dinner parties, but will it affect the Bottom Line Company . Peter the prior strategy was to be the largest car manufacturer of all. Not profitability, quality, he set the volume target. In a deflationary world, sitting volume targets without thinking about what it does to the bottom line is dangerous and that is the real problem. David one way to answer the question is to see with the markets are telling us right now. Matt we have a great function. The tea float shows you bond trading data. What i have done with the chart or screen is i have looked at consumer distraction very stocks in all the bonds traded between september 18 and now. September 18 because that is the day that the vw scandal broke. Us, if you look at volkswagen, you can see that theers are net negative on debt. What this says is traders are selling more bonds and they are buying. It is an interesting look at how the smart money follows this company. David it looks like that is to put most out of companies. Matt that is the case right now. David it is not unique to volkswagen. Matt not right now, no. That is interesting. We were talking about this with matt new england. Basically, they are doing so well right now that a lot of the pets are this is the god of and it may be time to sell. I will talk to mark field later today. Stephanie when you needed to buy a car, you went to volkswagen and i dont think that sentiment will change. What about that scandal . The scandal is great for us. John people who bought volkswagen, it is the element of reliability. Now you have to think about recalls and it is irritating. David peter and john, stay with us and matt will be speaking to the chief of another sorry, this is a ducati. Matt ducati later this morning. Around 10 30 a. M. This money. Still ahead, argentinas new president takes office today. David welcome back. Breaking news on oil. Matt oil is dropping all of a sudden. Just a moment ago, we got out export numbers. In october, the export at 2. 7 Million Barrels of oil a day in that month. 3. 7 5ember, the exported Million Barrels a day. That is what we are thinking we are seeing a drop. Stephanie im looking at my instant bloomberg and i am talking to wait traders and equity guys who are saying i am watching a trap and i do not know why. And there is that uncertainty matt i just explain to them why. Remember, it is uncertainty. It is not that Market Participants to not like market moving but it is when they say, i do not know why this drops and this makes them put their pencil down. Matt it is because iraq exported another one Million Barrels a day. David well keep following this and as her, we will bring it to you. Takes officei today. His predecessor refused to show up. Part of the major changes in latin america in southern america. Theres into this because is a big story in argentina, but the bigger story across a larger portion of latin america. Are seeing a lot of populist governments move favor with their people, not just in argentina but we are seeing a big shift because he is the biggest change you could have from former president christina. In brazil, you are saying and impeachment bid and in venezuela, we saw earlier this week a large momentous occasion for the opposition with the super majority in the national assembly. You are seeing this in more radical countries in latin america. You follow this. John my reaction is about time, too. This has been coming. Wasmain thing was many cash mostly antiamericanism, but i think argentina is fascinated. Here is this country, which 100 years ago, people looked at and tried to work out which make more sense to integrate to california because argentina was the fastest economy in the world back then. Then, nothing else other than really bad government. Christina is a low point. Stephanie from an investor standpoint, Political Uncertainty often times has people on the sidelines. Can you look at latin america and say there is a great opportunity or is it too unclear . Aner i think there is opportunity. The argentine government policy for good program to try to rates,ize the exchange fiscal discipline and try to get the energy and agricultural sectors opened up to be competitive, but they will have to get external financing to do that. They will have to beat market friendly to get the money. You have to see if it will work. Stephanie those lenders at a time like that are distressed loan sharks, soap maybe youll get the money but you will not get out from under the hold because when distressed guys step in to give you money, they went. Katia they will not get money until they resolve the holdouts, so it is not the stress. Loans,uld just get bank bridge loans, anything to hold them over until they can settle with management. And other holdouts from the fall, that is the first order of business for Mauricio Macri because he cant do anything until he gets that done. Stephanie thank you. David welcome back. Peter fishers black rocks Senior Director, but we will start with first word with david. Paris,climate talks in the dispute on who will pick up the tab. They will receive 1 billion a year to limit pollution and the u. S. And europe when china to pitching, but when it comes to climate change, they insist a developing nation so the chinese will not contribute. To keep thegoing government and business. Negotiators are trying to close a deal which would inspire tax breaks permanent and they hope that will speed up other talks and give a spending bill to keep the government and operation to avoid a repeat of the Government Shutdown. You can get this and other breaking stories on bloomberg. Com. Over to matt miller. Numbers. Aking initial jobless claims at 282000 and the week, slightly higher than the survey, they were looking for 270,000. Continuing claims number also slightly higher at 2. 2 4 million and we are looking for 2. 1 5 million. Again, if you grab initial jobless claims, they are holding down very well in the economy. David thank you. Peter, we are going to talk about the blackrock outlook for 2016 and you issued to report. Peter we published our outlook yesterday. This cycle is out of sync. Investors have been focused on monetary cycles for the last five years and it has been driving asset returns. With the fed shifting gears, we think it is time to focus on other cycles, robert margin, credit cycle corporate margin cycle, credit cycle and the influence they have great they are all out of sync. It has been so stretched out that you can see in the highyield market that things are turning, particularly the energy patch. Corporate margins are not likely to improve from here. The labor market continues to improve the before we get inflation, we will seek corporate margins squeeze and they will go up before they can pass back home. Stephanie can we even look at those markets . What oil is doing to the overall market, take yourself back the week. Take about last friday, opec comes out and they say that saudi arabia is not cutting production. November was the highest week seen in production to date and it appears iraq is off to the races, so supply is going up. When you talk about the Global Economy with expert numbers on friday out of china, we see the chinese economy on the downturn. Rising, no demand supply on a high, so how do you even look at other markets when you see this overhang is giving us a snapshot of Global Economy and they do not look good . Peter i want to agree with the distortion in the Energy Sector and week commodity prices. I think the central bankers will wake up and saw the coffee that this is the perverse consequence of policy. Stephanie this is matt millers favorite subject. Peter theyre complaining about the headwinds from deflation, whether it is the u. S. , japan or london, and it is of their own making. That is an example for me of cycles being out of sync. Ultimately, that is a big problem for the american consumer, yes, it hurts the Energy Complex but that will not hold back the u. S. Economy but Deflationary Forces in the world are real. Stephanie the problem created of their making, and you mentioned highyield taking a turn, could anyone say it is the cause of breaks being so low . Savers are being punished and they were pushed into credit and into the highyield market when maybe they should not have been and we saw so much new issuance in the last years, covenant like deals, companies that were jumped and now we are seeing that turned because investors are waking up and say, maybe the companies are not so great. Peter we could see corporate margins get squeezed. We could see the credit cycle turned but not get a recession. We could get the credit squeeze recession going on in the highyield market. I think that is what investors have to wake up to deceive the cycles are out of sync. You have to do more than just see what janet yellen had to say. Stephanie Oil Prices Continue to drop. Matt, give us a snapshot. Traders basically saying, confusion breeds contempt. The market is confused and they get angry. And you are saying, why are they confused . Matt i have no idea why you are confused i do want to use too strong a language, but a war to produce more crude oil, that was too strong. Sorry brent output side, opec. Just this morning, it has risen to a new record. Countries are trying essentially to put either u. S. Shale production out of business or each other out of business. If you can imagine the saudis and iranian as enemies for a moment, that is what is happening. Price of brent, the Global Benchmark for oil, but if you take a look at crude, it has been volatile but it is going just one direction. One week we are down 11 on a barrel of oil to 36. 74. Everything opec did in be unaware they basically said, not only are we going to raise the production, but we will admit there is no production and now produce as much as i can because i have lowercost. Stephanie it seems like it is on to the races. When we saw that rebound oil prices yesterday, he said, wait, is there news we dont know . People in the market trying to find some sort of profit in an environment where it seems like oil is going to fundamentally the one way in the foreseeable future. David peter . [laughter] peter that would be an easier trade vivid went one way, that i think there is a bigger overhang. The consequence of having the energy patch be levered up means that these companies that got into the Energy Market and the fracking space, they are now stressed. Did they stop pumping . No, they have to pay the bills and they are trying to avoid bankruptcy and being liquidated, but the capacity is there. Either the guy keeps pumping or they go through bankruptcy and get restructured and the new owner owns it at a lower cost. David they keep pumping provided that it exceeds the marginal costs. Peter it is like the company in japan in the late 1990s, you have to generate revenue as best you can, even underwater. Until someone shuts you down. David and you are headed to restructuring. Peter but someone will pick up the well in the next kerry will have bought it cheap at a lower cost point and theyll keep pumping stephanie . Stephanie and you are looking at the overall market, given all of the levers, you cannot make an investment in a vacuum. I take you back to 2000 x and 2000 7 2006 and 2007, you could be the best investor of all time, but if you do not know what it was on the map, you were screwed. Even if you like u. S. Investments, where is the best place to be for your protected and you can get a legitimate nonsingledigit return . Peter that is a stretch. You set the bar high. Stephanie isnt that crazy that that is a high bar . Peter u. S. For doubledigit returns, this is a world where Interest Rates are 1 to 3 . Stephanie blackrock once the budget returns. Peter a lot parliament to bring it down. Are funds to work learning to work. Especially this year. If you are searching for 12 15 without realizing it was, this could be a difficult environment to find that return. David i wanted to come back to what you said about the effective tax cut because of lower energy to the american people. We have heard a lot. Why are we not seeing it . It has been there for a while and more is not showing up in the economy . Peter the labor market is healing slowly and janet yellen has been clear. There is a lie until you see the income and wages, eight months to nine months. One of the statistics i have been looking up for the last decade is at the university of michigan Household Survey with income expectations. Ask the American Family what they expect their income to be next year as opposed to this year . From thousand eight until one year ago, zero growth. Prior years, 2 to 4 . It is stabilizing back up around 2 . Labor market is healing, income expectation is strengthening and i think the conception area of the u. S. Economy can do ok next year. I think the credit space, corporate margins may be a challenge. Recession and 2001 was not a real recession. We never had a negative quarter of consumption. We only had one as an investment recession because of the build up and technology in the dotcom boom. We can get downswings from other sources than gdp falling and consumption falling. I think we have to stay tuned for that. Stephanie what happens if we get the correction and equity markets . We could see a correction and Corporate Market highyield. Highyield and equities are closely linked. If we see a correction in the tech side or u. S. Equities, that could put more pressure on highyield. Peter yes, but equities have been trading sideways or the last year. We had dips, ups and downs. If the u. S. Economy does a little better, i think that can keep the equity market going sideways rather than downwards. That is what janet yellen and colleagues are hoping for, that they will be gentle in the path of tightening that they will not spook equity valuations. We saw what happened this summer with a little and im sure that could happen again. David lets go global. In particular, china. What do you expect . Peter china is slowing and that is taxing us all. There is a global slowdown in demand. That is going to be difficult for emerging markets. They are significantly depressed over the past year. We have got to hope the pickup in demand from china from the Service Sector is Strong Enough to lift them and something to come along with that, but there is a big restructuring and china. It is coming from the economy and we have to get ready. Stephanie how . Peter be aware. Stephanie what does that mean . Peter we have had great returns for the last several years and you sit there and think you will get it by picking something simple like a sector or the stock market will go up 12 or 50 . That is not the case for next year. Stephanie what is the base case . If you are a hedge fund out the, you are still asking to and 20. Peter that is a challenge for them. The return is another matter. The Hedge Fund Community has to look for the same assets well look at, equity, debt, and other , real estate and less liquid once. We will be challenged to find the returns. You can do it by being specific. A securitye selection market. It has been a lot of that data. Stephanie you have to be good that investing this year . Peter you have to figure out if that is the Balance Sheet you want to own. You will have to think all of that through. Research all of the analyst you thought you did not need, you better call them. Peter exactly. Stephanie peter, stay with us. When we return, we are talking experience. Experience economy week at bloomberg. Talkingalk to kenny d about his business and the embolization and the evolution of todays consumer. Stephanie you are watching bloomberg. We are watching oil markets moving lower. Matt miller, we got that opec report for december and the key take away is the output is only going up as demand goes down. Not a good balance. Matt demand actually continues , so the momentum is not the same. I just want to take a look at the last six months. Six months ago, we were at 61 a barrel. 36. 73. W, as a precipitous maybe too much, it is a favorite word, but this has been a precipitous drop, especially this month, down 12 the paster and 11 in week. Oil traded up only two days so far. Ok, it is only december 10, but i think it is interesting in actually,fell 18 before i get that wrapped, let me show you the seasonality chart. You can do this for any index if you put on heat map and you can see please, bring up my terminal. Thecan see here, december, average drop in december over the past five years, 5 , and right now, down 12 . Actually, last year we were down 20 . Stephanie i next test is one of the few guys who likes oil down. We are talking about the experience economy as more money is spent on experiences and less on physical things. How do Companies Keep up with the changing consumer . Is here,is why kenny the founder of wheels up. Personal, you like oil prices. Kenny we like them and our members like them. If you look at the big airlines and the oems, Lower Oil Prices equals lower operating costs which is great for everybody. Stephanie except when you say, should we see flies get cheaper . But they say, sorry. Kenny the rich get richer at the end of the day when markets are moving in their direction and they will take the margins that are given to them and it does not get passed along. Stephanie what does that mean for your business . Kenny at the end of the day, we service a small part of the economy by a number of people put a big part of the economy by disposable spend. Or 25 3 4 of earners of businesses in america can and ie private aviation like to say it is the most efficient way that people can get from a to b. We so time we do not sell airplanes, we sell time. Time is your most viable commodity and that is what we sell. Peter i do not fly much, but it is fun when i do. Kenny you will never go back. David i have flown wheels up and it is also convenience. Because of the experience on commercial airlines is not what it used to be. Kenny in the heyday, they sold experience and today, they do not. We sell it. That said, the consumer today is not about the stuff that you. Ear or the stuff that you buy the brands that drove the last 20 years or 30 years, the millennials show that experience is more viable than actual business. Stephanie you are selling more than time and efficiency. You have wheels down now. How does this work . Kenny the average fire in wheels up is a 25 to 50 our flyer. More mind we want share, so if you are wheels up 25 or 50 hours a year, and you are wheels down the rest of the hours, we put the schedule together that is anchored by the masters, and it is filled in by some small and regional and intimate events. We want wheels up and wheels down to be on your mind. Stephanie dont rich people want to buy stuff anymore . It seems like they want less stuff and more experience. Why the shift . Brandsyou look at how are set up today. In the old days, it was what you were wearing or whatever was physically on you, but you look at social media and it is about what you are doing. Dr. Got, as we talked about, the autograph of debt. Stephanie what do you mean . Kenny 10 years or 15 years ago, if you run into someone as a celebrity, you ask for and how to crack and today, you get the selfie so everything has changed and you asked for an autograph. Today, you get a selfie and everything has changed. Peter i think it is part of the turned to service economy. In a world where digital experiences are applicable are replicable for free, whether it is a beautiful, broadly, they have been revitalized and you pay for something that is unique, not something that someone can copy. Day, at the end of the social media and the way we communicate today, relationships are getting thinner. Much physicals contact. I think a lot concert business and wheels down, people want to assemble. Drivenhat experience is on the backside of what is happening in technology. Ever. Nie bigger than peter, thank you for joining us. Peter fisher, like rocks Senior Direct black rocks Senior Director. Kenny is not going anywhere. He is a big bowl of later. You are watching bloomberg. Stick around. Stephanie you are watching bloomberg. We are here with wheels of founder and ceo kenny. What do you consider a trend . Trend,you an example, a all of us are wearing less jeans and more activewear. Here is one of my favorites. Organic, glutenfree, begin. Fad . Or kenny mega trend. Nonprocessed versus process, same thing, megatrend. Stephanie every year, there is a new diet that will change our life. Kenny if you go back to basics, shelflife, its something we talk about now, 50 years ago, or was no such thing. Shelflife requires chemicals in the food supply. Were going back to basics. Megatrend. Stephanie Online Shopping killing the bricks and mortar retailers . Kenny anyone who doubted jeff bezos and amazon getting carried out, i think that the online trend is to make a megatrend as well. Anybody that can stop sam walton and company in their tracks in the timeframe that jeff did, no doubt in my mind it is a megatrend. Stephanie is that the geopolitical overhang . You there is. For there is definitely something with the way that media is talking about what is happening in the world and making things very scary. To isis, dedicated front page of the newspapers, that helps all my retail. Stephanie we will be right back with kenny. You are watching bloomberg. David we are now 30 minutes away from the opening bell. Lcome to Bloomberg Stephanie we are joined now by brendan greeley. Are you watching the markets . People are saying, i dont understand what is happening here. The fact that the markets it is amazing, extraordinary, the moves we have seen. Brendan we look at the centralbank action, there was no change. Everyone was expecting something to happen, nothing happened. What was true yesterday is still true today. Before we start david has our first word news. That thee fbi says couple were planning violence prior to their marriage. Gunman and the man who bought the guns used in the attack were related by marriage. Friends and family members of those killed was the shooting scene yesterday. A suspect in rwandas genocide decades ago hiding in donald trump canceled his trip to israel. Dozens of lawmakers protest the planned meeting with Benjamin Netanyahu. Trouble reschedule after he becomes President Trump says he will reschedule after he becomes president. Whatsil has dictated going on in the markets. At see oil right now trading 36. 97. There was this dramatic drop after iraqi export numbers came surged versus exports in october. This puts the cherry on the cake as far as opec upping production. Day, my producer was showing me that oil and the s p have no correlation. I have charted the correlation going back 30, 40 years here. 19. E at a negative we never get to a perfect correlation, obviously. We were closer in 2012 and 2013. Oil does not determine the direction of stocks. Lets look at futures right now. S pew futures were up futures were up. We have seen them give up some of the gains, but still in the green here. Futures still rising. Stocks tend to move the markets. Exxon, chevron will be the biggest movers in the dow on a day when there is a big oil swing. Down. 6 . Llips surprise, but you see the pound weakening just a little bit against the dollar. Take a look at the euro right now. The eurodollar trade is also weakening. David im taking a look at breaking news here out of aig. Is announcing that he is going to be stepping down. We are seeing the chief risk officer stepping up into that role. Doyle,also seeing john the head of commercial come also leaving. Commercial insurance is one of the primary businesses at aig. The ceo is going to be stepping into doyles role. What is happening at aig, you have carl icahn banging down their door. Pretty tough to breathe when you have carl standing on your throat. Just learned that bank of america has passed its stress test. They had to resubmit after failing last march. This is good news for Brian Moynihan and his new cfo. Good news for bank of america. Brendan he has to shortterm the company. It was about capital controls. They could not take all the different businesses and make them work together. This will make shareholders happy as well. These are the three stories that matter to markets right now. Number one, no movement. The bank of england and swiss National Bank left their rates unchanged. Subdued wage growth and oil would keep the controls Jonathan Ferro spoke to the president. Take a listen. There is no necessity to change Monetary Policy at the moment. Rates and the willingness to intervene if necessary. These are two Central Banks facing two completely different challenges. Thomas jordan is in a currency war with mario draghi. The bank of england is facing a problem, the same problem as the u. S. They dont know when inflation will reappear. There is movement and oil. When you look at core, core is still 1 . If we cannot find that inflation, we cannot create it. Oil prices and wages have to affect you kenny they should be flying with us. Prices stephanie they have to affect your business. Kenny of course they do. , there is a big part putur economy that airplanes together in this country and is one of our grandest exports. David are you seeing wage pressure . Kenny in our business, no. We are not dealing with entrylevel folk. In theive oems world that make private airplanes. They had that under control. Economists have always had you strip out oil and fruit prices, oil and food inflation is inflation. What people see when they drive their cars if there is a longer movement and oil, that is part of the equation. Oil is something we have to buy and we cannot ignore it. Doing given what oil is right now, we will not see 2 inflation for some time. Stephanie let me give you number two, glencore shares surged today after the Company Announced it would further reduce its debt, scale back operations and sell assets in response to the slump in commodity prices. The company said it is studying an ipo for its agricultural trading business. The chairman is a nonexecutive director at glencore. Raise, rich guy by uy, when you see Companies Like glencore go through such a yearing, 3. 7 billion this , momentum is not your friend anymore. Will this make it more difficult for you as not been nor when we see market volatility as an entrepreneur when we see market volatility . We just finished a roughly 100 million fundraiser, pre peered up425 our competitors, it will be difficult for them to raise money in this market. Back anaturally pull little bit and they are less willing to play in perspective markets. We have unique partnership with jefferies. They did a great job for us. We are not seeing growth. We are not seeing inflation. There is no growth in Public Markets. If people want any kind of return, they have to go to guys like you. Kenny at the end of the day, being a notch of nor like myself on to be new or like myself, theres no return like in october nor can get you being myself,preneur like theres no return like an entrepreneur can get you. If you find the right ceo and right management teams, you will win and you wil. Matt the markets are pretty optimistic about glencores statements today. Their default risk is really surged. K, you take a look at drs can see the people risk. The green is the share price, the blue is the default risk. You can mess with the variables a little bit. Three mber the luck of the irish. Irelands economy on track for the best year of growth since 2000. The fastestgrowing country in the eurozone for the second straight year. Likelyme minister will basis campaign on the nations recovery. Ireland recently talking to a senior financial official in government. He said, they made us do it. Between the imf and ecb, they forced us to make the reforms we have to make. Theyve done two things right. Happened accidentally to be the kind of economy that could be helped with the german prescription. When germany wants to force everyone to be exporters, ireland has exports. Pharmaceuticals they can do these things. They have been so much better at negotiating with the European Union than greece ever was. Minister is an comparably better an comparably better at going to the European Union and saying we will work together. Dealing in a way that is underappreciated. Stephanie he knows how to play ball. I urge everyone to read the profile i wrote in business week. Stephanie those are the stories that matter most to markets right now. We are 19 minutes from the opening bell. We will bring you the premarket louvers. Kennyg that unicorns with premarket louvers. Premarket movers we are talking dead unicorns with kenny. David welcome back to bloomberg. Here is the latest Bloomberg Business class. General motors is less than 600 million the final cost was less than the carmaker anticipated. Jim paid damages on fewer than 10 of 4000 claims. Gm. When it comes to stress tests, the second time is the charm for bank of america. Hey resubmitted capital plans incomes expected to will rise 10 in 2016 to more than 36 billion. Carries in north america copper more than half of that. Account for more than half of that. Investors are piling cash into unicorn companies. Stephanie welcome back to bloomberg go. We have to talk tech come onto partnership and the flow of money and how that affects the business is thriving today. This morning, pew released new data that for the first time , there are more people combined in lower class and upper class thirds then in the middle class. Economists have been talking about this for forever. Politicians have been talking about this for forever. What does this mean for selling . Middle class is getting squeezed, it is a bigger upper class and lower class, pick up or go lower and go after it. Hes developing products for the working class that he never thought about before. It is the size of the market. Side, we are focused on the upper end. The upper and does not want to carry risk anymore. Residual risk in the old models, people are not interested in that risk. They fly membership style with us, which is changing as well. Stephanie is that part of the sharing economy . Least when he nineyearold disruptors created this. These 29yearold disruptors created this. David they are quick. It took 10 or 15 or 20 years. Today, to guys in an App Development company can do it in three. Disruptive innovation has always existed . Kenny it has always existed. It is about what the speed of disruption is. Phil knight, disrupted adidas. In 1978, he knew what he was going to do. When you look at this income inequality weve been talking about, we traditionally talk about substitution. As you move up the income ladder, you start with walmart and then go to macys and then end up at some Department Store ive never has this movement, this change in the way income is distributed in america, has that changed . Kenny you have retailers like amazon and target getting cross shopped. The working class and upper class are both fighting over bath towels. You have cross shopping happening. You look atreneur, the segmentation where the money is flowing and put your Business Model and tune it to what the marketplace is going to give you. Stephanie there is so much focus on uniform these in Silicon Valley companies have you been bitten by the unicorn . Unicorns like wheels up, they are thriving. The halfmillion dollar population. Uber, it has a market cap bigger than ford and gm. I believe they are worth every dollar. Y can flip certain levers travis is jeff bezos seven years ago. Bezosody thought jeff could not stand. Get intohey wanted to the pizza Delivery Business . These guys have an unbelievable opportunity to run the table. It is fairly priced. You have to have about 10 times earnings to reach a valuation. Do you think they can make 5 income . A year in kenny i do. That is from somebody who is right business run businesses and the billion dollar topline stephanie we dont hear about their profitability. All these Tech Companies talk to us about the money theyve made and who is on their board nobody is talking about profitability. Kenny if you dont think jeff bezos can take the amazon prime 99 and flip it to 199, you should see some money. They have leveraged their business if you dont think he has leverage in his business jeff is like costco with his amazon prime or netflix. Look at their recurring revenue. That is what people are buying into. She is already trying to pull her jaw off the floor. Strauss ran bmg records. He did not see the ipod coming. Airbnb caribbean kenny i like the tech enabled businesses that have revenue going on. The straight text up tech stuff, i dont understand as much. Im a buyer of airbnb. Stephanie thank you. Im heading out on assignment. Next, why prime inequity might be doing more buying and selling in 2016. Brendan welcome back to. Bloomberg. Bank of america has passed its stress test. How big of a deal is this . Deal, mostlyig avoiding the downside of what would be a disaster if they had failed. Some investors have said Brian Moynihans job was on the line here. It was a big deal for them to get this out of the way and get investors confident. Brendan they had to change control inside the company. Mike right. This tookve hundreds of millions of dollars in terms of revamping some of their technology. Is the america amalgamation of a lot of companies brought together over the last 20 years. Combining all that is really tough and theyve had to go back through and work on their system. The ceo was very involved on a day to day basis. This was a big deal for them. The councilved on for brian. They changed their chief financial officer. This was the first thing. This was a high priority for him. Howre unclear whether related it was. The we have a sense of what this means for dividends . They get to continue the dividends they asked for. It is not a negative. It may set them up better for next years test, which is coming in june. David as markets are opening in new york, thank you very much for joining us. Private equity may be doing more buying and selling in 2016. Or to tell us why is the chief Investment Officer at hamilton lane. Here to tell us why. Ive heard this from other people in private equity, this is a good time to buy. Why . Erik we are getting ready. Theres a tremendous amount of cash waiting to find a home. That is exactly where we are heading. The Interest Rate rise will further drive down the ugly and that makes it a much better time to buy. Brendan what is the timing on that . Up 20 fiveing about basis points from zero and a step ladder of 25 basis points every meeting. We will get to 100 at the end of the year. That is still lose policy. Everything that is happening to drive down the Public Market, what youre seeing is a real lack of public to private transactions. The private equity practitioners think the Public Markets are too expensive. Fall, yountinue to will start to see private equity begin to step in and snatch up those public companies. David why do they have so much cash . Has been liquidity tremendous. Record levels of distribution for the last several years. The investors want to stay in the asset class. They are taking that liquidity and redeploying it back into private equity. I have a chart that shows a point that erik was making. If you look at private equity, the big private equity in terms of publicly traded, the Carlyle Group and green or apollo in white, they have really come down. The markers for apollo, down 35 . Apollo group is very similar. You make the group that you think it is because the market, investors dont understand the Business Model or how to evaluate. Erik that is exactly right. All these guys are raising more and more assets. Management fees are going up. What is missing . What the Public Market is failing to value is that carry interest. They are not valuing the profit stream that is coming. Data is veryin the repetitive. They are generating profits yearoveryear over your but not getting the same trading multiple on that. Brendan just because there is money to buy things doesnt mean there are good things out there to buy. I spent some time with a pe firm focused on smaller cap firms where there are real efficiencies to be had. They said Everything Else was saturated. Is there something to buy now where their turnaround can happen . Erik we will go back to the oil price issue. Those companies are in need of cash, the Public Markets are taking a huge pounding. A lot of those companies will start to go private. At the exxon, but the second and third tier sized businesses are perfect for private equity. Then you are expecting to see oil at 40 buying in now and then you can play the commodity issue. David what about overseas . Thoughtsher said he they were fully valid, but not in europe. Erik the Europe Market is beginning to turn over. Youll volume in rising in europe rising quite a bit. Place that everyone is shying away from a bit is asia. That market is not growing as fast as people expected. On a relative basis, asia is absorbing the least amount of private market capital. Brendan when you look at them, do you see the core efficiency can be run out of them . Erik there is always operational efficiencies at private equity can bring. What you are seeing is a today for theween Public Market versus a much longer term tomorrow for the private markets. Sales. See some for david what about emerging markets, latin america . The turnaround in venezuela and brazil. Erik this is where private equity is a little nervous. But theis really low, uncertainty of whats happening on the political side is still causing private equity to say we are not ready to go in yet. This is the frantic open brazil. The only thing and has going for it is the weakness of the real. The Global Players are sitting on the sidelines. Most of the private equity firms dont have a big presence in brazil to begin with. The brazilian market is saturated by local players. That market remains relatively small and fragmented. What about places like columbia . You have a growing middle class. Erik what is the size of the investment is it worth your time and effort to diaper lots of resources when theres things to take up here or in europe divert lots of resources. You arefirst time, beginning to see a lot of private equity people begin to look at mexico and talk about mexico. It has the easy proximity that people like and it has a much bigger target set. , we willl rank order see more capital flowing into mexico in the near term than we will in venezuela and columbia. Brendan one of the frustrations in europe is the inefficiency of the labor market and infrastructural reform. Do you see the possibility of bringing efficiencies and of companies when the labor markets there are very highly structured . Erik in europe, that is typically not the play. It is very hard to make those labor changes. In europe, what you dont see his private equity playing a classic playbook of going in there and trying to make it more operationally efficient. You are trying to expand across borders, trying to source in Raw Materials better. I said labor efficiencies, you said labor changes. We are talking about inspiring people. David weve been talking about hisyou use the Money Private equity having any difficulties raising the funds . Erik they are raising too much money right now. Money is flowing in rapidly. It goes back to the earlier point of liquidity coming back to get redeployed. The numbers at this point are compelling. You take any tenyear stretch and the private equity performance over the public not a couple hundred basis points, it is hundreds and hundreds of basis points a premium. That is driving people to up their allocation in the asset class and that is bringing a lot of money back into the markets. David that makes your job harder. Erik that tends to also drive prices higher. By saying private equity would like to see a better time to buy cheaper. Having a 10 of money does not help that equation. Erik. N thank you, matt miller is waiting on the sidelines. Where our markets . Matt the most important thing to look at is the commodities market. Crude has taken another leg down. 36. 74 a barrel. The slide continues after those iraq export numbers came out showing exports in iraq in november were much stronger than they were much stronger than they were in october. Chart look at the sae ig i have taken us back to 2008 when oil crested at 150. It came down six months in a row. We have not seen a sixmonth drop since then until now. This is 2015, six months in a row. Fort now, down about 12 2015. 2014, kenny mentioned we were down 20 in december. December historically has been a very bad month for oil. Take a look at the index is right now. We just open for trade and we are up across the board. Not seeing strong gains. Three points on the s p. Oil stocks are what to watch today for direction. Right now, you see marathon down of it. Hess down. 5 . Natural gas which held off stubbornly after oil dropped its first leg has now come down in sympathy about 1 right now. Natural gas stocks are once you want to watch as well today. Especially in the nasdaq. Southwestern Energy Company percent. Range resources down 2 . Companywestern energy down 5 . Abigail first solar, shares plunging today even after the Company Raised its 2016 profit forecast. They expect to make 4. 50 per share. This seems to be focused on the fact that the sales midpoint for 2016 is below consensus. They took their rating down to a hold from a by. From a buy guidance for 2016 may prove conservative. Here is the nasdaq. The Companies Going public. Shares priced at 21. They will trade shortly under ticker volkswagens ceo sits down with hans nichols in his First Television interview since the companys emissions scandal broke. David welcome back to bloomberg. S 48 vehicles earned the highest rating in crash tests. Had 23 honda and subaru winners. The only american car on the list was the chrysler 200. Walmart shoppers can pay with their smartphones stores at the arkansass headquarters set. O install mobile apps Financial Markets in south africa in turmoil. The president fired his finance minister. He will go ahead with plans to build Nuclear Power plants. Europe, moving back to volkswagen said yesterday that a number of its vehicles with mr. Did Carbon Emissions with tated Carbon Emissions was much lower than expected. Is this as good as news as volkswagen is telling right now . they dont have any additional reason to be concerned. They said that 800,000 vehicles they thought would be affected by carbon dioxide, it will only be a fraction of that. Theyve submitted plans to german regulators and u. S. Regulators. They think they are getting a handle on the situation. Have taken up this challenge. Weve established Crisis Management. To make sure that we can work through the process to clarify those issues. As far as the current status is concerned, we are on a good with the issues we need to analyze here. they think they are cleaning this up. They are getting closer to getting to the bottom of it. They are still going through their analysis. Of the 100 whistleblowers, no one actually revealed new information. They are still dealing with regulators in the states. Indicated heler would be going to the states in january. Im looking forward to the congressional hearing, if there is one. That would be good television. Have some fun. David we will be there. Im still perplexed year. The news is better than we thought on Carbon Emissions, but not better on nitrous oxide, which is quite taloxic. They have to comply with both. Hans in germany, they think they have a software fix. They may have to have an air filter for the bigger engines. They have not gotten the full green light. They just dont know yet. One thing that is clear, they will not be shedding brands or assets. That was one issue, what will they do with their different models, different brands . Matthias mueller made clear that they would not be getting rid of the motorcycle maker. Brendan they still have liability matthias 12 excellent brands. The Volkswagen Group and we are happy and glad. Nothing will change in the coming years. Hans they will have a new luxury bugatti coming up at the auto show. A great story, Walking Around all the halls, its a lot of fun. You will have a volkswagen that will look a lot like it looks now. They still have liabilities in the tens of billions of dollars. That money still has to come from somewhere. This is a company that has famously been immune to cost because they have such a powerful union. Can they do the cost cuts that are necessary to come up with this cash . Hans they say they have 20 billion in liquidity. They are not selling assets, giving you an indication that they think their Balance Sheets can hold it. Matthias mueller told me they will not have any job losses. They dont expect any job cuts. The still have the old costcutting program done a year ago. A 10 billion euro plan. In terms of selling their stake beyern come a Successful Club that just beat Manchester United last night, they still have a stake a company that invests everywhere. They will not be selling their stake in that because they think they have liquidity strength to survive this without job cuts. We must see something in the way they will be fixing their vehicles that is not as expensive as the provisions theyve set aside for. Matt hans makes a good point. The market agrees. I grabbed the credit default swaps, the cost of insuring volkswagen debt against the default. They have come down considerably. Nichols, thank you for joining us. Matt miller will be speaking with the chief of another volkswagen brand, an interview with ducatis north american cia. We will take a look at todays conversations. Brendan welcome back. We will take you to some highlights from today. As heard in bloomberg. The markets hate uncertainty and surprise. People speculating about when rates would hike, when youve had the volatility weve had, people start to Pay Attention. As people get more comfortable that the market is settling down, that gives people confidence to act more aggressively. Good atare not very hiring. Irony. Seven years of Monetary Policy is what created the boom and bust cycle in energy. So much of what the markets are doing in europe is trying to work out what Central Banks are up to. More of an investment play than an economy one. If the u. S. Economy does a little better, that can keep the equity market going sideways. That is what janet yellen and her colleagues are hoping for. The rich get richer when markets are moving in their direction. They will take the margins given to them. The consumer today is not about the stuff you where or stuff you buy, the brands that drove the last 20 or 30 years. The millennials, we are seeing that experience is more valuable. Time for post, it. Brendan kenny was just talking about what people buy. I asked him, what you sell when the middle class american disappears . Issaid the economy right now you have for his people and poor people fighting each other for the same towels in target and on amazon and that is as good of a description as the new retail economy as ive heard. David it points to the income inequality. I will pull from carla harris. Uncertainty and surprise, the markets dont like it, but companies dont like it, either. Trying to be totally transparent. The importance of transparency and being open. Brendan you see that with central bankers as well. When theyt so angry said Central Banks are trustworthy. They did not do what they thought they should. David tomorrow, we will be joined by alan patrick, the ceo of brooks brothers, julian emmanuel. Join us. Betty it is 10 00 in new york,. Nd 11 00 a. M. In hong kong thats 11 00 p. M. In hong kong. Welcome to bloomberg market. From bloomberg World Headquarters here in new york, good morning. I am betty liu. Oil is falling. New yorks low with close in more than six years after opec crude rose to a threeyear high and november. Why it will continue. Watch out loyal Lower Oil Prices. Companies and Crisis Management mode. Plus, a new strategy from glencore. Sending shares skyrocketing. Volkswagen ceo talk to bloomberg as they struggle with cleansing sales. A lot happening on this thursday morning. Have an hour into the trading session so far. Were