Transcripts For BLOOMBERG Bloomberg Markets 20160115 : vimar

This plunge kicks off the friday morning. Julie we have some breaking economic news. The university of michigan january numbers come in ahead of estimates. Up 92. 9. We see an increase from december. So, just one data point. Earlier, we got retail sales coming in line with estimates for the client. The most eyepopping data point is Empire Manufacturing in the new york area in january down 19. 37 . A 19. 37. The negative sentiment has recurrent returned. We are back down once again. As you look at the brett of the decline, it is broad. All industry groups, all subgroups are trading lower. Energy is leading the plunge. Along with technology, the nasdaq is showing the upside when we are moving up. A big cap on technology after a strong 2015. Financials were also lower despite estimated numbers from citigroup and wells fargo. Financials are also lower. Energy is doing the worst. Oil prices are selling off. Belowe crude oil trading 30 per barrel. Since late lowest 2003. I want to check on the fix. Vix. We are seeing increased by 16 . This is one of the hallmarks of the selloff. Gotten thatin high. That is an anomaly. Spike to 40. X betty where is all the money going . Julie it is going to where people think there is safety. Incredible trades in treasuries. There is a 10 year yield touching below 2 . It is back above that level. Gold futures reaching that level as well. Here, we have we are taking a look at some safe havens. Take a look at my terminal. Here are oil prices. As welle japanese yen as the treasury are not seeing big gains. That is what we saw last year. Money flowng some today and during the selloff. It is moving to where people feel more secure. Betty thank you. Julie hyman there. We will be watching these markets carefully, moment by moment. Lets take a look at what else is happening with our first word headlines. Vonnie quinn has more. Vonnie thank you. The start of voting is 17 days away. Pauls are tightening. Frontrunners hug the spotlight in the debate. Areles poles tightening. Is raising concerns about the texas senators eligibility. Trump the democrats are going to bring a lawsuit. You have to have certainty. You cannot have a question. I cant agree with you. You cannot have a question. Vonnie ted cruz was born in canada. Trump is pushing the issue because they are now and net. Neck and neck. The government wants to resume whether taxpayers will get fees based on mining companies. Chicago activists are calling for a protest starting today after the release of another video showing a Fatal Shooting by police. The video was released after a court order. It shows a black teenager suspected of a carjacking in 2013. It shows a white office or tiny black teenager. Officerows a white shooting a black teenager. Global news 24 hours a day, powered by our 2500 journalists and 150 news bureaus around the world. Betty thank you. Lets get to the markets. Crude is tanking again. Hitting a 12 year low. The dow is down 400 points. It might be time to make a new call. Goldman sachs said they are going for a market rally. Jeff curry is saying the key thing for 2016 will be fundamental adjustments that can reballot markets to create the birth of a bull market that we still see happening in late 2016. For a closer look at where oil is heading, i want to bring in a critic of oil predictions, daniel yergin. Of thed the chairman ihs research. Join me from washington. Are you a critic . Think it is difficult because people are trying to say what will happen to the chinese economy . How much oil will be ran put into the market . How much oil put into the market . Right now, you know, it is striking. We are in an oil price range. That is where the great takeoff of china and the emerging markets were heard we back to 2003. Betty we are. We are wondering will we experience 2003 all over again . Daniel we are close to it in terms of oil price. People know, they follow the thist they knew that friday the ran would get irna would get certified. They are going in the context of this Global Market panic. Betty it does seem like a panic. Have known about this is rainy and news for quite some time. I understand it is becoming a reality. Daniel it has been clear that this is going to happen. The irani and government wanted it to get done more quickly. The United States government wants them to do well. The United States was cooperating. It does mean that it is coming into a market of greater weakness. It was thinking it would happen in march or april. Betty if i can read into what you are saying, you think what we are seeing is prompted by irani and supply. Daniel yes, and china. There are two debates going on. Number one is that they are making policy mistakes. The other is that this is signaling fundamental weakness. The markets are voting that this is fundamental weakness. You have a weaker demand outlook. Although, were looking at 1. 2 Million Barrels a day in demand growth. 2014, butgher than lower than 2015. It is the downside for china. By the way, is the u. S. In vulnerable to this . Betty do you think we are vulnerable to this . Daniel yes. The shocks contagion that come from problems of debts and emerging markets, a weikel a weaker Global Market and trade. There is one other factor which is the strength of the dollar. You get to the inverse movement between the dollar and oil prices. Particularly, at times of change. That is another factor hammering oil prices. Betty there are a lot of factors. Thent to go further into Goldman Sachs report. It is getting a lot of headlines. Daniel a while ago they said 20. It is interesting. Betty i agree. It sounds like they are walking backwards on that. On that headline that came out saying now, they are that is an outline number. We are not saying it will go down to 20. Daniel the thing about the witness of oil prices is that it weighs on the overall stock market. We have had the view for some time that we will see a rebalancing in the oil market in the second half of the year, because basically, not just the United States but around the world Oil Companies are slamming the brakes in terms of investment. And your notws having new supplies come in, then you get a market that does not rebalance in 2016 or 2017. Betty it does not . Daniel it does rebalance, because it is cutting projects. Theyre being postponed, delayed or canceled. Betty that is what Goldman Sachs is saying. Once you hit oil and the 20 range you will see a rebound. They believe the shale boom in the United States will reverse. Quality demand continues to stay at these levels, that is where youll see prices rebound. They are hoping it will hit 40. Daniel actually, at this point we are using a price for the average of the year in the midrange 40s. Re are certainties uncertainties about china. One thing we are watching is what happens with u. S. Production. United states production is down half a Million Barrels per day. We certainly think it will progress over the next several months. Producers, their access to money, simply the pain they are under we will see the United States down about one Million Barrels per day. That might happen around the second quarter. Betty we keep piling up the oil. We are at the top of storage tanks. Daniel yes. You point to something that is a critical factor. If we go back to 1998 people are saying 10 per barrel. That is when you run out of storage. We have been watching our numbers carefully. We followed shipping numbers. We do not think we are at the point of running out of storage. If we did, then you would see much lower prices. When you do not have any place to put the oil, it is cheap very cheap. It has somewhere to go. How far off would you give us before we do fill them up . Is that at this point we do not believe we will run out of storage. Aerial area does not hold true. If the World Economy was much weaker, and demand was much weaker, then problems are greater. The other thing that complicates the picture, in terms of geopolitics in the gulf region, between saudi arabia and you ran ran, there is such an intense rivalry. These people are in a proxy war. They see very little side that gulf countries want to sit down and make room for irna, right now. Betty we also have the peripheral Oil Producers in europe. They are getting caught in the instance of middle of this. Norway and their economy. We look at how quickly and methodically their currency has been tracking. It has basically been in line with where crude has gone. As the price of oil has gone norwegian currency. An official came out and said we are in a crisis mode. Our currency is devalued. We are in an emergency situation. How does that play out . Daniel that is not only in norway, canada, australia, the emerging markets, they are in a currency crisis. This is a real shock for their economy. That is a reverberation running through the whole World Economy. That werussia saying were charging 82 per barrel. Now, maybe they should plan on 30 per barrel. Half of their budget comes from oil. There are a lot of countries that will be hit. I think that we will probably ounter surprises somewhere, it often happens, you will see it were something comes from left peeled field where people do not expected. You have to keep your radar up. Betty you have to be prepared. Before i go, you mentioned the gulf countries. Nothing happens that saudi arabia. I am curious with the saudi arabia and ipo, you think given the timing, is this saudi arabia signaling to the world that oil prices will be look lower . Daniel i think it has to do with the drive of the crowned prince wanting to reform the economy. They have looked at other economies in seeing that this is a way to raise money. I think there is a shift in view , which was originally that we need to save oil for our grandchildren. The view now is that maybe we need to modify faster. Betty hedge our bets a little bit. Thank you for joining me. Dan yergin. Lets also check in on the equity market. In particular, the dow which has just plunged 400 points. Now, coming off a low. We are hitting a low of our session. The worst plunge since september of last year. Betty good morning and welcome to bloomberg markets. The markets we are closely following. I want to go to the market desk with julie hyman. Julie energy, i want to get to that. I want to start broad and look at what we are seeing. Forave not hit these lows an early session. We have a long holiday weekend. Short or longw investors want to beef. We are seeing oil selloff. Thiscontinued selloff morning. It is below 30 per barrel. It is down 5. 5 . We see money flowing into treasuries. That is characteristic of the risk option. Below 2 . Touch now, it is below 2 . Ares a very big move we seeing in the 10 year. In terms of individual stocks, the oil majors are selling off, not the most, but we are seeking death scene big declines. The energy group is the worst performer. But we are seeing big declines. The energy group is the worst performer. The strategy to migrate away from chips for pcs and server processors, that has had some success. Now, the companies are talking about slowing growth. Apple is declining, microsoft is declining. Citigroup and wells fargo both came out with earnings that beat estimates. Revenue was higher for wells fargo. Citigroup saw increases with revenue with asset sales. Those shares are lower as well. Jpmorgan is getting tracked down. So, the earnings season, that for some investors they were looking to come in and help matters. I believe adam parker from Morgan Stanley said earnings season should help. It is still on the very beginning. It is not helping. Betty not yet. It is overshadowed by the selling. Julie hyman at the market desk. Is a big day for banks. The second worst decline are on the s p. We will break down those numbers from wells fargo and citigroup. , shares ofou can see citigroup and wells fargo are off and early trade after they beat earnings estimates this morning. Onigroup revenue was higher the scale of more unwanted assets. However, wells fargo jumped ahead of citigroup to make it to the nations Third Largest lender by assets value. Citigroup continues to split. To break this down, i want to bring in christine harper. Our executive editor for finance. It is hard to read much into this, given the broadbased selloff. You know, were investors cheered by what they saw . Christine what i would read is that citigroup was hurt more than wells fargo. Relative play a that people are not happy with citigroup. We have a story out saying that people view the revenue as soft. They like that it is up, but when you dig down, some of it is just from selling assets. That is not really moving forward in a way that they will be able to repeat. Another thing, to the point of how city has fallen behind wells fargo. Citigroup is shrinking in business. The valuation that the market is putting on what they are doing is very low. They are trading at a faction fraction of book value. Investors are looking at what they have and saying it is not worth what they say it is worth. Wells fargo is growing. Even though wells fargo is facing a challenging environment , they are growing in revenue. They are able to keep cost. They have a future that is more positive from investors point of view. With citigroup it is shrinking. For a long time, people have been helping that they could get expensive under control expenses under control. Betty do they need to do more with expenses . Christine i think the general view is that Everybody Needs to be better with expenses. There have been a number of announcements at job cuts at Morgan Stanley. Obviously other banks have been aggressive. We have reported that Goldman Sachs, which has been a leader in trading, is looking at cutting off their trading business. More and more likely, i will say and groups like citigroup, others that have a lower evaluation as opposed to wells fargo, they are under more pressure to show their investors that they are getting a grip on expenses. They will improve their return on equity. That is more for citigroup than others. Betty you mentioned wells fargo has a better outlook, is that part of the fed rate hike cycle . Christine partially. They are also very u. S. Centric, they have a very contained business. They are a commercial lender. It is not a big investment banker. Things like wild swing in the market swings in the market do not impact them as much. So, wells fargo is benefiting in some sense from the fact that they are more streamlined. Citigroup is struggling from the fact that they do semithings. You. thank christine harper, our executive editor of finance. As we go to the break, we will look at how treasuries are trading. They are the safe haven at this point. The yield is coming down for the 10 year. Betty live from from bloomberg World Headquarters in new york, good morning. I am betty liu. Were watching the markets carefully. Hovering around lows of the session the dow is down 350 points. If we can stay on this track of decline, we will see the biggest loss in the dow since february of 2009. Lets turn to oil, because that is what is driving the losses. You can see nymex crude below the 30 per barrel level. You heard dan yergin say that is partially due to iranian oil supply hitting the market. Crude is trying to post is going to post the Third Straight month of decline. We putting this in context. It does not look good. Lets get first word news with vonnie quinn. Vonnie thank you. Rescuers are searching for 12 after two marine helicopters collided near hawaii. They went down last night, two miles off the north shore of a wahoo. Oahu. The coast guard is helping with the search. In jakarta today, there is grief and defiance. Hundreds chanted and saying during a vigil after yesterdays attack. There is an explosion killing two people and a busy shopping area. Demonstrators say they will not given to extremists. Give in to extremists. Jeb bush received an endorsement by lindsey graham. Astronauts, including britains first space walker are working to restore full power to the International Space station. There was an electronic box that failed. The spacewalkers will make the switch in darkness to prevent electricity to flow through the Solar Power System and shock them. Global news 24 hours a day, powered by our 2500 journalists and 150 news bureaus around the world. Betty thank you. On the campaign trail, candidates have been sounding the alarm warning of a trade war between china and the u. S. Deallandmark trade congress is now considering. David set down with the trade representative and ask them what it means for trade relations. David what is the relationship like today . When youre talking to your counterpart in china . We have a good dialogue. They raised concerns about u. S. Policy, we raise concerns about china. Right now, there is an amount of overcapacity in steel and aluminum, largely coming from china. It is having a serious impact. Over a year ago, we launched a dialogue about how to deal capacity. Because, they are doing with the problem from their own perspective. We will press them to make those kinds of changes to move towards more market determined policies. To move towards domestic growth, rather than export led growth. These are all policies that the trade department is engaged with china to help encourage them to reform their economy. We think it will create more balanced growth for them. And a better relationship for us. David the first blueprints of the deal predate you. China is not in disagreement. Is that a point to you that they were not brought in in the beginning . Mike there were 12 countries willing and eager to sign up to a high level agreement. They have strong intellectual property rights. It puts disciplines on state enterprise for the first time in any agreement. It to make sure the internet stays open and free. It wants to make sure the internet stays open and free. They will sign up for that. Countries will do that as well. We do not want to compromise our standards. The goal was to create rules of the road for the region. They will reflect our interests and values. David is there a possibility china could join the agreement . It is intended to be an open platform that companies can join. If they are willing to meet the standards, and all full of us agree, and we go through the approval process our focus with china right now is on bilateral investment. It is similar to the investment chapter, and it is a good test to see if they could sign up for high standards. It will help them fundamentally improve the relationship between the government and the economy. Taiwan,n indonesia and how do you expect how do you accept the readiness of a country . Mike we have an ongoing dialogue with the countries. Now that it is public, they can analyze it for themselves. Identify where the gaps are. We have a conversation with them about the gaps. Whether they can bridge the gaps. They have other outstanding issues in the trade relationship to determine readiness. So, some will be closer than others. Right now, our focus is on readiness passed between the 12 of us. That is our priority. That was ambassador mike froman, the u. S. Trade representative. David joins us with this. David, where are we with the approval process by congress . David we are in the domestic states. Lawmakers are looking at this. Paul ryan had a message a week ago. He is still working to the documents. There are nearly 30 chapters. There is a lot. Congress has 90 days to vote for or against this. Once that happens it moves into ratification. I asked him when you look at how different it is to ratify this agreement, is it difficult in the u. S. . Betty theres a lot of disagreement about jobs. David when people think about nafta and what happened after the deal was passed, you can ask what came first the chicken or the big . Egg . People worry about that. Is there enough intellectual property protection. You have those concerns, then you have lawmakers with specific concerns. For some lawmakers in the south tobacco is a big issue. When you have such a huge document and sony cutouts, there are people who will disagreement disagree with specific elements. Betty this is part of the president s political equity. He thinks this is a chance for the United States to lead. David absolutely. In the state of the union he called for congress to pass this. He used that language. Saying lets lead through trade. That is novel to me. I think he state so much on trade. He has the traveling backandforth to asia. As it became very clear, i think anybody watching the speech, there is not a lot of time left in the administration. There is the appetite for these deals, but if they have time is an open question. Betty who else might join . David china is not, south korea is in the wings. Costa rica as well. Well see what happens. I asked him, i said seeing and what is happening in europe and china with the political climate, did he feel lucky the deal was going into negotiation . He said yes. It is an ideal time. Betty david, thank you so much. We will be back in a few moments. Lets look at how some other markets are trading. Including, how currency markets are trading. The dollar is taking a big dip after resale Sales Numbers retail Sales Numbers. They are dipping right before. We are climbing back up in the u. S. Currency. We will be back. Betty welcome back. This is bloomberg markets. Lets go to europe where mark barton is seen stocks fall to the lowest level in more than a year. That is following what happened in asia and europe. Is like a domino effect. Mark we were down 3. 4 . This is the most significant action of the day. Check this out. ,ooking at the 12 month chart because, from there to their that is 20 . Betty i can read this. Best 20 . Not the it is a bear market. Marketse, chinas bear happened from behind in december. Hours happened from the record high in april. Money moving into a fixed point. It has not been a good 2016. Betty it has not been a good 2016. We will be all over these declines for the next hour. Mark we well. Howard davis from i sat down with him, and tom spoke to him earlier. He will be telling us about his view on investment banks. He said investment banks in the u. K. Have to rethink services. Michael franklin chief strategist will tell us about the market selloff today, and in 2016. You know him, he doesnt have his tec hat on, he has his political hat on. Betty he will have his bow tie on. Mark he will. He made his name. He is here in london over the next few months. Pursuits, we will focus on luxury watches. Show oft luxury watch 2016. It will be monday in geneva. We will be finding out in 2016 will be a rough year for the luxury watch industry as it was in 2015. I have not worn a watch since i was eight years old. Betty really . That makes sense. You do everything differently. I love my watches. Anyway, i am looking forward to that. ,or a look at the u. S. Market Abigail Doolittle has the latest. Live from the nasdaq are we have seen the nasdaq taking it on the chin. Abigail that is correct. A big down day in the u. S. U. S. They are dealing with the biotech. Taking a look there, we have been reporting on the bear market index for more than a week. Island is big is below estimates. We are getting a bit of a negative tone. Along with the big tech plunging shares today. They are dropping to the lowest level since october of 2014 after the Company Posted a mixed Fourth Quarter on pc demand. The company is saying the new year is off to a difficult start, especially relative to china. This makes it a negative tone for big tech. Apple this is their worst point decline. Now, that is another big tech name dealing with the news out of china. Also, there is news that the company may go 8 billion in back taxes. 8 billion ine back taxes in europe. The timing of this news, considering that the stock is down 20 since early november, is not great for apple shareholders. Betty indeed. A lot of the shareholders are nervous. Thank you. Lets check in on other averages. Lets check in on the dow and s p. The dow recently hit a low. We are coming off slightly off of our low of the session. Pace fornp we are on our biggest month of decline since may of 2010. The biggest loss since february of 2009. We have already lost 1400 points on the dow. That is just the first part of the year. As chinese stocks enter a bear market, what will this mean for u. S. Equities . Howard marks talked with us and gives his 47 year career perspective on the big swing and what he calls a manicdepressive market. Why investors need to have a reality in their vision. Howard the market is manicdepressive. It goes from seen on positive to seeing only negative. And from interpreting everly positive to interpreting everything negatively. From interpreting everything positively to everything negatively. Help us make sense. The news out of china from the beginning of the year was not a big surprise. What is your take on china . Howard i think they have a serious problem. They have a serious set of challenges to convert from exports and construction stimulated by easy money to reserves. They need to moderate the growth rate. Move to athey need to freeflowing economy. Have aone which will recession. That is like the rest of us. They have not had one for the last 2030 years. It is a series problem. Serious problem. Is it easily mounted or serious disaster . People moved from the first to the second. Psychology,market slipping back into a bear market, you and i can understand it is interesting to what is happening in china, but for Retail Markets it is complex. Heres my question. We are set for another round of earning seasons, is analyst anything to go by . Returns the surround . Around . Rns this howard people are not able to say now, the market is 1 undervalued, maybe it needs to get dramatically undervalued. That could mean it swings too far into the negative. Thing, youis the have made a good living being a contrarian. Take advantage of other peoples fear. Being fearful when others are greedy. How do you know when they are appropriately fearful, and when your pendulum is overshot to one side . Howard you have a sense. That is all i can say. Be fearfulnough to when they are greedy, and greedy when they are fearful. You have to know what the market is doing and why. David a lot of peoples concerns over china are unjustified. Know when they are overshooting the limits of justification. Know the key is to you have to know you have to have a bedrock of reality. When you see an asset stock going like this. That is not enough. You have to know what it is worth. There is an intrinsic value. You cannot be an investor unless you understand intrinsic value. Only if you know the intrinsic value, that is why you have to be a fundamental investor. Andou do not have the time intellectual preparation to know these things, then you have to turn your money over to somebody who does. Betty that was oaktree chairman howard marks on bloomberg. He was given in giving perspective on the volatility in the market. Still ahead on bloomberg markets. Stocks are declining, so did consumer spending. What is that mean for retailers . We have retail veteran steve newman. He will be here with us and a moment. Betty lets get back to the Global Market slide. Stocks are sinking. Contributing to that is the data that shows retail sales dropping in december. Ending 2015 on a low note. Encouraging that the data will create significant doubts about retail sales. Is the ceo of lomans. So, on the top line, it was down. 1 . We have to remember the declines are small. Where is the juice coming from in gas prices . If you think about retail, overall, some of it falls on retailers. What is new in the market that will make you want to spend your money on something different. I just went to the show in las vegas. I was like a kid in a candy store. I could not believe that this was something this is something the business is redoing down the line. What is new . The problem for me. Macys is closing stores. Where does it end for me . They are often trying to do it with the retail thing. Macys is driving it. Betty yes. Shotn why would you ever at amazings without a discount coupon . Shop at a macys without a discount coupon . What is it that people want or need . About a need, what do they need or want. Theyre shopping at the moment when they think they need something. Not to just fill their closet. Betty we see more of the clothes stores . Steven retailers are buying less inventory. It is the differentiator between all of these retailers. Betweenthe difference walking down 5th avenue and seeing the same stuff in the window, it is the name or the label . What brings people in . Betty and hudson bay, they brought people and for a fraction of the value. It was not a billion dollars, it was 250 million. We will wait and see. To buy in the stock because at a quarter of guilt. Betty by the way, it is the same stuff you can get online. Maybe the value is in the name of their stock. Betty American Apparel is doing well even though it has been battered. Lets listen to what he said. You can look at any retailer suffering and possibly in bankruptcy, few have the brand value and cultural relevance that American Apparel does. We see this as a devalue play. Perhaps, the billiondollar play of the decade. American apparel could be a multibillion dollar company. Betty you just said wow. Steven i think a lot of people said wow along with me. They have been so in disarray for so long. Have we seen Companies Come back and make a change . Absolutely. I was in the store not too long ago, but the quality is ok, the prices are not cheap. Betty 1 billion . Steven it should have been a 1 billion play when it was hot. It did not. That is a huge turnaround. Time will tell. They have a lot of marketing to do. Betty you have a lot of guts in saying that. Steve, thank you for saying that. Much more coming up on bloomberg television. We will have a rare sitdown with hisceo of shire with thoughts on the merger. It is 11 a. M. In new york, 4 00 p. M. And london and 11 00 p. M. In hong kong. Welcome to the european we go live to london as we wrap up trade in the next hour. What happened to the rally we saw yesterday . Blinked you missed it because european markets are entering up our market and adding for the lowest close in over one year. The european close starts right now. Betty we will take it from new york to london next hour. A bear market already . From april but not as low as we were, down by 28 . Wasere down by 3. 4 which the biggest drop since august. Has you say, its a bear market. Frochinese bear market was