Transcripts For BLOOMBERG Market Makers 20240622

Dartmouth, just a few minutes from now. Lets get you caught up on some of the top stories. One of the most serious crises on the Korean Peninsula in years, talks between the north and south are in its third day of talks. Demands that south korea and the propaganda broadcast. Harry reid has come out in favor of the Iranian Nuclear deal. He was one of the democrats who hadnt announced how they would vote. Upma has been trying to line enough lawmakers to make sure it doesnt get killed in congress. Today the french president franceshree americans highest decoration. They prevented what could have been a mass shooting on a french train. The gun man would have been successful is my friend had not gotten up. I want that lesson to be learned going forward, in times of terror, do something. Moroccan gunman is a who had been flagged as a radical islamist. Hiringe is planning a binge on september 9. They will add 4000 employees. The Restaurant Industry has been struggling to retain staff. Chipotle hopes to entice new potentially earning sixfigure salaries. Davis love the third became the pgawinner of the window. Tiger woods finished four shots back. Those are the top headlines. But we must return to the markets. These are the five things you need to know. Julie hyman is helping me kick things off. This was precipitated by the unexpected devaluation in the chinese yuan. Its chinese stocks fell the most since 2007. Down more than 8 at the close. Point, the shanghai, was up 60 on the year. Seng was, the hang down 5 . Curran with us. Havething the chinese attempted to do has failed to prop up the chinese market. Sign that the chinese have plans to do Something Different or perhaps more of the same in the weeks ahead . Whatever they try next, they better hope that it works. It hasnt. They can do a lot more. The can step in through regulator. They could intervene in a way that is through the market. Julie can you describe to us the mood of the regular chinese there . People who have invested and are seeing their gains also way . However, the overall net effect on the real economy is a moot point. Of investorsumber is a small part of the population here in china. The net negative effect might not be as bad as people say. However it is hurting consumer confidence. It is not what the government wants at a time when the economy is showing. Is slowing. Erik especially after the president had advised the chinese that the stock market was an attractive investment. That was enda curran, thank you very much. I want to add that the evening 4 ures is down more than this morning. Two, we have a big deal announced. Southern company is buying agl resources. They are spending 8 billion in cash to gain a stake in the gas distribution business. Both stocks are trading a little bit higher in the premarket. What agl used to be . I dont think so. About 33 . Are up agl is down 12 year to date. 12 year to date after a big drop last week. Thanern company is higher any price it has traded at this year. Done ondeal is getting a monday after a selloff. Answer aa data question. They wither on the vine until the markets stabilize . Anecdotally, no. Julie in this particular case. Oil is slumping, dropping below 39 a barrel this morning. You can see here that nymex crew is now trading low. Is oil that is down near 30 since may. This underscores what is happening in the commodities market, roughly. Oil appears to be the one we are focusing on. But we could look at copper, agricultural commodities, and we are seeing similar patterns everywhere. Julie i saw something about oil being the leading indicator. Market is only now catching up with oil. If it still is a leading indicator, it should tell us something about where we are going. Number four, donald trump went after hedge funds. He said by making a fortune and not paying taxes, they are getting away with murder, sounding a lot like some of his competitors in this race. Erik i feel like Donald Trumps being leftare worth to speak for themselves. Julie so no comment, is that what you are saying . By most measures, the dollar has been moving sideways. According to an index that the fed created to track the dollar, it has been surging versus 26 of americas biggest trading partners. Instead of you and i talking about this, we are going to do this with peter fisher. , and beforelackrock that he was with the fed. It is great to have you here. Peter thank you. Erik so many questions to ask. But the most important is, does what we have seen last week and today with the futures down more than 4 take a fed hike off the table . Peter it changes the calculus. The fed has to stop and think about it. Is this showing underlying weakness in the economy . Erik what do you think . Peter i dont know yet. We know we have been pumping up asset prices and equity values. Andpush them up high enough they are bound to correct. I think we have to posit a minute and think about this being a consequence of qe. I hope the fed looks at the underlying data. The underlying data is good, employment is doing good. See aso you would like to rate hike in september . Peter i would like to see them get it off their chest. It make itould complicated . If the feds job is to study employment,d job why would it prevent them from pulling the trigger in the way they would like to . Because Monetary Policy only works by influencing conditions. That is why it has been so odd that the fed has said Financial Stability is someone elses problem. That is the only way we influence, we need a transition mechanism. If this goes on another three weeks, it would be a strange time to raise rates. But i hope they look at the underlying strength in the economy. , china and thece emerging markets are slowing u. S. And the developed markets are doing well, so we are getting divergence. Where theyive to have been, not to history. Peter yes. But now we are seeing the chinese slowdown is for real. No one can say they are going to pull a rabbit out of the hat. That is bringing things into focus. Side, we have the productivity slowdown. We have slow productivity data. The fed hase that, to be worried about whether inflation is around the corner. Maybe we dont want to believe that data, but the fed has to pause, janet yellen in her speech spent some time talking about the productivity puzzle. It has to be on their mind. Erik if you were an Equity Investor, what would you be looking at right now to inform you about the direction of markets. Are you looking to china . U. S. Economic data . Peter iamb looking at the u. S. Economic data. If the Economic Data were to we are bad at predicting recessions. If that were to happen, it would make me nervous. Good. Far, it looks as far as income, employment, and housing. This drop in seen confidence on the part of consumers and ceos. Peter yes, but we have to wake up to the fact that equity values. Very high. This has been an amazing bull run. Erik but peter the Equity Investor has to recognize what a Great Bull Run it has been. Erik i will take this opportunity for a quick commercial break. When we come back we will continue the conversation with peter fisher from the blackrock institute. You have a look folks, futures are down more than 4 . We are headed for another drop in the how industrials. In the next hour we will be who sayso doug ramsey we could fall and other 50 from where the s p fell on friday. Stay with us. Erik this is Market Makers on another big down day. Unless you are looking at government bonds like treasuries. People are rushing to the safe havens. We returned to our conversation with peter fisher from blackrock. Also from the school of business in dartmouth. Easing, wetitative were talking about when and if the fed was going to be able to raise Interest Rates. But lets look at the past five or six years. If we look at the performance of markets last week, and the fact that the s p 500 is now act down to the level it traded at in june, 2014, what does that tell us. Peter it tells us about uncertainty in asset prices. This theory is that they are going to create a wealth of fact and make uss feel better. We would hope that that leads to more employment. Erik would you call that a failure . Peter i think that is very speculative. Erik if we are talking about the efficacy of qe in the United States, couldnt we be talking about whether should be pumping billions of euros into the european Financial System as we speak . Peter qe is over here. Very much alive in europe and japan. Peter what is the endgame . If we keep pushing them up, the most likely thing is that they come down. Equities seems to be following the oil prices. So when we push things higher and higher, the Central Bank Theory is that if we keep pushing things higher we will get to a better place. But actually, you make it more likely that it will come down. Erik lets talk about china. China precipitated this selloff. What do you think is really going on inside china . Can it fix the market problem . Peter they should try not to intervene. It was the great temptation to buy equities to stabilize the market. I used to be in charge of foreign intervention for currencies in the United States. If you start buying, everyone comes in and sells. The currency market, they still have some capital controls on there. So the equity market was a pure experiment with intervention. The underlying issue is that the prior chinese leadership that step down three years ago, they waited too long to open up the currency market. And this leadership is trying to play catchup. Erik what does this mean for emerging markets . Peter china devaluing is not good for the markets that compete with china. That is a big news item. For the Chinese People rebalancing from investment to consumption led growth is going to be great when it happens. It will come gradually, it will be difficult. The real challenge is on everybody else who has been that go intodities their infrastructure, that is what is weighing on the emerging markets. At the yieldoking on the 10 year treasury. Given what we know right now, today, does that make sense . Peter unfortunately it does. Because we have pumped up values so far, people run to the treasuries. Erik does it last . Peter what worries me is that the fed has lost influence. Erik i think we should always be scared of that. Peter fisher, a senior investor at the blackrock institute. Coming up here on market day later this morning, we will have for aoff who has third time. Does he feel bullish . We will find out. 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As far we make of this as where volatility will go next . What is interesting is the movers this morning. It would not surprise me to see out of the gate this morning. The spike that we have seen in three days, i see this as a point of capitulation here. 600 points is a massive move. 2011, we saw to vix over 40. Saw bigthe last time we futures there. That we have seen is almost unprecedented. The fact that we get this much in three days, and in a week, the largest gain we have ever seen, if we get any news from our fed out of china about another sort of qe or the china bank doing something, i would not be surprised to see fixed futures trading back below 20. Julie bold call. It has been a lagging indicator. We have seen the commodities selloff. Is there somewhere we can look universe to get some kind of predictive mechanism . Take a look at the term structure. To approachly going 35, maybe even higher. But there is a lag. The fear is for the here and now, it is not going for, 6, 8 weeks. There is going to be some announcement, whether it is will yellen saying that we not raise rates, or news coming out of china, the fear is fourth this week. Going out, not so much. Are you shorting the vix right now . I am buying the put market the put options. That to where they are trading, you look at what the skew is, and the put options are pretty cheap. That is where i would put my money. Because i know what the risk is. That is where my bet is. Julie all right, that was scott bauer with a little bit of hope this morning. He is joining us from chicago. Erik that was julie hyman. Right now it is time for our top stories. There is a takeover this morning, the Southern Company for 8eed to buy agl billion cash. Southern is a public utility holding, and agl is a national gas distributor. Down. Ia is citigroup said it could get worse, with oil falling to 32 a barrel. Out has said it will put oil at any cost. Joee is speculation that biden will enter the president ial race. He met with Elizabeth Warren, she is a rising star in the Progressive Democratic candidate who has not endorsed a candidate. He is talking to Elizabeth Warren who has incredible ideas on how to make the economy work for everyone. I think it is no surprise that he would want to talk to someone like that. Erik no Public Comments from biden or worn. Movie aboutctures over 20roup took in billion. We have more to come on the markets, it is a bloodbath. The dow futures are down more than 583 points. A are in the neighborhood of 3. 5 drop. Is getting00 whacked. We will be back after this short break. Erik in london, the selloff continues. You have heard a lot about the point drop. Stocks in europe are getting hammered. The stoxx 600 is getting hammered, falling almost 5 . That is the worst drop. London,hecking in in can you give us a little bit of what europeans are talking about . China, andall about whether that is going to leak into growth. What is the main concern in europe . There is concern over slowing growth in china. There is also an element of panic selling here in europe. The selloff that we have seen here today has been deepening. Had its worst drop in four years, today, earlier it was heading for the worst day since 2011. Now we are looking at the worst. Ay since 2008 the stocks the stoxx 600 is already in correction. 100, we are seeing that head for its lowest level since 2012. No National Equity benchmark is immune. All of them have dropped today. This in the midst of bloodbath, the strengths of the euro is back up to 1. 15. That has been one of the big winners today, looking in europe today. That is because all of these concerns over china, the big question is about when the Federal Reserve will raise rates. Goingre off set that is to happen in september, and that has made the europe and the yen more appealing to the dollar. So we have seen the euro rally to 1. 15. Erik thank you so much. We have talked about equities. We will return our focus to the united said. The United States. Mike, you have been reading this morning. What is standing out to you . This feels like a very sharp correction this last thursday good fourut this is a months since we have seen this kind of drop. If you crunch numbers around this kind of idea, it is the longest it has taken the market to fall 5 . What does that mean . When you, any instance try to go back in history as look at Something Like this, it is a little ridiculous. But if you look at that type of dipping, an elongated finding that it is bound to be at least a correction, at least a drop of 10 , between 10 20 . But he doesnt see it going into a their market. Every instance like this is unique. Erik the past isnt a prologue. Lets talk about valuations. I wont call it a correction i guess it is a correction. The underperformance of u. S. Here, is a big expansion on the basis of fridays close, in see that the s p 500 did some back mass. Hold, andimates futures, the decline we see in futures plays out, that will correct further to 15 times. Which brings us closer to the fiveyear average. Bethe markets will appear to inexpensive. Is, does this cause you to be skeptical about those estimates . Peaked, when the market valuations were above average but still reasonable. But, you remember, Bank Earnings were gone. Is, with thison type of market drop, is it the type of thing that will make they arent comfortable buying a car, a house, im going to pull back. On howwer will depend long this lasts. If this is a prolonged threat of weakness, the threat to the United States starts growing. But if this is a sharp dip, it is like pulling off a bandaid. Sometimes you get a quick ounce back. 1998, we hadt sharp declines, the market was back to sea level by the end of the year. So are we looking at a long, stretched out drop . Or will it bounce back . Erik what stocks are you paying particular attention to today . I was looking at what stocks. Re up today i couldnt find a Single Market up in a premarket trading. Some penny stocks, some pharmaceutical and biotech stocks, but the higher you get, the harder it is to find a stock. Looking at some of the big amazon,starbucks, and banktlife, forward of america, they are all down 5 in the premarket. We are not looking at stocks that are down 20 , it is not a concentrated problem in a sector, this is a sell everything market. Started talking about yet, what this looks like . Does this look like 1998 . A lot of people have made that comparison. It started with emerging markets. Apart. Y pegs fell erik and then the sustainability gets called into question. Right. This, the oil part of it was on the front end. The similarities are there. A lot of people say the bowel sheets are a lot stronger than they were there. Are similarities and much faithbut how can you put in modeling something on the past, especially when you have an event this unusual, it is hard to go to history and find a playbook. Erik lets not forget, oil may 100,ve started off as but it did end up down. Thank you so much. That was mike reagan. When we come back, the fear factor is coming back on wall street. Vix is soaring to a multiyear high. When we come back. Erik who is afraid of a little volatility . Jumped by the most ever in a single week. Isare asking whether this temporary or if it is back with a vengeance. To discuss. E context, iake it in think it is important. Sure we have longterm charts to help put that in perspective. People we have a spike, get concerned and they overreact, they realize they overreact and the volatility comes back down. Back, and is coming if you think about what has happened over the next last several years, we have had low volatility. People were under reacting to events in the market. We have had a great six years, but now valuations are extended. The explanations for the past three years is that centralbank liquiditys has been under central markets, and there has been a put their. Re. They would pump more liquidity into the system, and that is why the fall was so low. Japan continues to pump liquidity. U. S. Are seeing the talking about normalizing. People are expecting it. On the other side, we see europe and japan doing unprecedented levels of qe. I think of it as a rubber band. Valuations have gotten tighter and tighter. People are more concerned about them snapping. For example in china, there is thatng growth, and fear the diversions the title d is making people concerned. Ivergence do you expect the volatility to continue this feels like horrible volatility. Last week was rough. The this takes us back to 2003 timeframe. Yes and you need to have the context. When people under react and then overreact. It is not horrible. Horrible,nt is not jobs are being created. And if you look at china, if they were in a bubble, and now the bubble is coming off. We are not in a horrible situation. Central back is bank is being accommodating in europe and japan. People will realize that they were overreacting. Are their sensible places to invest in a world of high volatility . Absolutely. We want people to make sure they are focused on taking a deep rest and calming down. This is an overreaction. We think people should focus on equity that has sustainable income. Important in particular, we want to focus on stocks that are safe harbors. Example, the reinsurance business. Ofis not on the first line success or on the hook, so a , theny like swiss re dividends are over 8 . Ae second one would be 5 . Based company, over that is the berkley group. Are exposed to buying land, developing the land, and it is not one type of things like houses. They do apartments. They have had phenomenal cash flows. They have done such a good job of growing and managing growth. Gorman as james that was james norman. 4 , some stocks are moving way more than that. Are set toand stocks open down, and not just a little bit. Are currentlys down 655 points. At the moment, you can expect the market to open near that level. Individual movers could take a hit. Look hyman is back with a at some stocks we are watching. Was telling you that he was struggling to find any company that was up. Like apple, facebook and netflix are seeing continued pain this morning after big declines last week. Other momentum names like twitter and gopro, they are continuing to sell off. Twitter continues to selloff, gopro has been volatile, and it is selling off. With the magnitude of the kleins thehese names, but also in old bluechip stalwarts that dont tend to move a lot. They dont tend to be volatile, Companies Like General Electric are selling off this morning, down by 5 . At t is down 2. 6 . Cocacola is down as well. Step back from these individual movers, i think we should take a look at what strategists are estimating for the s p 500. 22. 32. Age estimate is as of now, they havent been dissuaded from their fullest bullish views. Erik that was julie hyman. We are back in a moment. This is a great place to work. Not because they have yoga meetings and a juice bar. Because theyre getting comcast business internet. Comcast business offers convenient installation appointments that work around your schedule. And it takes done. About an hour. Get reliable internet thats up to five times faster than dsl from the phone company. Call 8005016000 to switch today. Perks are nice. But the best thing you can give your business is comcast business. Comcast business. Built for business. Good morning. This is the second hour of Market Makers pimco im erik s. Im erik schatzker. Stephanie ruhle is all. I was i had some company because futures down almost 4 . The dow futures almost 4 down. The nasdaq futures at sometimes this morning and down 5 . Oil is getting killed once again. Below 39 andg a barrel. The stoxx 600 down more than 5 . The biggest decline since 2011. Where is everybody going with this money . Back into treasuries with the yield below 2 for the First Time Since april. Let us look at the top not market stories this morning to one of the largest utilities wants to take advantage of natural gas. Southern companys, on a day like this, has agreed to buy agl for a billion dollars in cash. Southern is the thirdlargest utility owner here in america. Agl is a natural gas distributor. Expectsiness economists the fed will raise Interest Rate before the end of the year, if not before the end of september. Only 37 say it will happen as soon as next month. That is according to a survey of the National Association of his economics. I do not have details on when that survey took place. It is important given what we saw at the end of last week. Black rock is the latest company to invest in Companies Buying Single Family homes. They will offer to renovate homes to make them rental revenues. They will loan money to smaller landlords. President obama travels to las vegas where he will unveil a Global Initiative for energy. There will also be a billiondollar Loan Guarantee program. Coming off his Marthas Vineyard vacation. Those here top headlines for the moment. Let us return to the market talk, everybody. Indicatingres another serious down day for american stocks. The broad selloff expands all industries. Volatility back up to 28. The vix probably going to increase today. Last week, the increase was one of 18 . 118 , thet five biggest five day gain. Strategistief jonathan is with us right now. What is it going to be like for the next few days. Jonathan i think we will have a lot of volatility. I think investors are reassessing the bullish verses bearish arguments you are hearing in the market. What we were hearing is a lot of bullish arguments that perhaps Earnings Growth is not as bad as it seemed because some of the things driving at lower returns a tour, things like Lower Oil Prices and a stronger dollar. As you are going to get better Economic Growth in the second half of the year, that valuation in where bonds are was largely still supported. That the visas has been overrun by bearish markets that there is not enough growth out there to support u. S. Equities. Is our priced target for the s p 500 is 2100. We have been in the more cautious cant. The lower the market goes from here, the more opportunity you have in the last few months to recoup some of those losses. Erik based on one earnings estimate and one multiple. We have seen the multiple corrected and a big way since last week. Jonathan we have assumed a basically unchanged multiple since last year. That puts at around 17 times on a trailing basis. The reason we have that something was broadbased. What argument we have had been was that there is not enough growth to do that for multiples on the as of you hundred. Your return should largely match your expectations for Earnings Growth. Earnings growth is reasonably subdued. You should get 34 Earnings Growth this year did that is the upside for equity. Our total return target for 2015 is a 4 gain, 2 out of dividends and 2 for price return. Like is that why you highyield dividend stocks are now . Jonathan it is a big part of it. We put out a report last week arguing investors should move into the higher dividend yielding stocks. There are a few points. What we were arguing is that the disconnect that happened where Interest Rates have gone and where dividend stocks have gone. We built the strategy that look to invest on the long side with the companies with the highest dividend yields and on the short side, the companies with the lowest dividend yields. That has attracted rates well. It hasnt happened this year. What has happened this year is a little bit of a breakdown what that strategy of high dividend yield has done poorly, and yet Interest Rates have not really gone up. Given what we have seen over the last couple days, Interest Rate are down 20 basis points or so on the year. What we think has happened is that you have had poor performance out of dividend strategies despite an Interest Rate environment that argues they should be doing much better. Our recommendation is to give a second load to these dividends look to these dividend strategies. Erik you have argued that the s p 500 dividend yield exceeds that of the 10 year treasury and that it is time to buy stocks in general. That is where we are at right now. Since friday, the dividend yield put it this way, the dividend yield on the s p 500 is what it is in the 10 year treasury yield has plummeted below 2 . We are showing it to everybody with the s p 500 dividend yield is greater than that of the 10 year treasury. The charti do not see on the screen, but i have seen the dividend yield exceeds the treasury yield over the course of this post crisis period where you had low Interest Rates. That, go back beyond back 50 years or so to find a real occurrence where you had a higher dividend yield for the s p 500 then you get on the treasury yield. I think that is another supportive argument for why investors should be looking at dividend strategies. In the report i mentioned, we looka really fresh at utilities and mlps. We looked at their Interest Rate risk and the fundamentals and their valuations. There are a lot of support of arguments that can be made for some of these quintessential dividend yield sectors. Erik is Earnings Growth is in question, should we also not question sustainability of some of those high dividends . Jonathan we have had a reasonably subdued view on where Dividend Growth is going to go. For example, our expectation for Dividend Growth is basically the same as our expectation for Earnings Growth. What i mean by that is dividend payout ratios are not going to go up this year. To finde places Dividend Growth out there. For example, financials. Financials is one of these sectors where everyone has liked it because of the expectation of higher Interest Rate. It has not done well recently as Interest Rates have come down a little bit. Keep in mind that financials are one of the best sectors right now to find Dividend Growth. Financials will have the fastest Dividend Growth over the course of 2015 as banks continue to increase their payout ratios. Another factor that does not get enough credit for its Dividend Growth is technology. Year, theast 3510 Technology Sector at the fastest Dividend Growth of any sector in the s p 500. There are places to look for Dividend Growth and we still think it will be positive over the course of 2015. Erik jonathan, thank you for spending time with us on this disney busy monday morning. Chief strategy equity strategist at barclays. There is another m a deal. Vonnie quinn has the details. Three billion dollar deal. Sycamore partners will by dell. Buy belk. It is a private equity firm known for buying slumping equity firms. Out and the it price tag is 60 a share. That totals to about 3 billion. Once again, this is in a share and be sure type of situation. Majority voting power will vote in favor of this acquisition. Erik vonnie quinn with the latest of belk being acquired by sycamore partners. Find out why james west tells us. Here will be blood pic erik you have not seen this since 2009. U. S. Crude selling for less than 40 a barrel and even less this 38. 81. 38 81 there will be blood and he is with us from north carolina. What do you mean there will be blood . I do not mean to use smile, i just love the reference to the movie. James it is going to be ugly for the next twothree quarters for the oil industry. I think we will lose one third of the competition that came into the u. S. Market during the shale revolution through bankruptcies or assets investiture is. It is going to be a very Challenging Market to fight through. Erik if you are right, it is going to be challenging for the. Roducers at some point, that supply or the loss of that supply should support oil prices, should it not . Jonathan if you look at the data, we have been losing supply since april of this year. Tipping point at this back half of the year with the acceleration of supply losses should occur. We are also losing supply abroad as well. Oil prices are finding a bottom and that will be positive as we supply the oil price. One of the things that has kept supply on stream and allowed the shale patch to be more resilient than many thought at the beginning of the year was the stability of credit markets. Right now, that is totally in question. Does that mean we will see the supply roll off faster than we thought couple of weeks ago . James i think that is fair. Regulators are taking control of the Banking Systems and Energy Portfolios and basically saying no. The highend market has blown out good for energy. The banks no longer in control of the revolvers for energy, you have a lot of producers get their terminations have theird they Credit Facilities cut back significantly. For this to be difficult for Service Companies because these companies will run out of cash. Erik what about private equity . We have heard since the last year that there is dry equity counter waiting to be put to , including Steve Schwarzman seeing it as a buying opportunity of a generation. James we actually think that is true for private equity. However, i think it will go after companies that are that are capitalized and better anchors than the ones that will go away. Shadowt does present a Banking System if you will, it is not one large enough to keep it a lot of the producers in play. Erik james, what makes sense right now . If oil is in this kind of a market where prices are only if youlower, is there, will, a safe haven . James there are two groups on the server side that are very attractive. One is the large cap everson five. There are structural owners for the cycle because most of the competitions in north america will go away. We also like that group of companies that are in the north american bucket which are survivors and will when the cycle. Large cap diversified halliburton, schlumberger very easy. Erik even though they are under cost pressure . James yes because they will win and survive and buyout their competitors. They will emerge much stronger at the end. Erik thank you for spending time with us. James west is an analyst and he says in the oil market, there will be blood. His greece coming to blows or are they making shrewd political moves . Attempts to form a new government in athens. Will they be successful . U. S. Equity Index Futures are closed, heading to the open at 9 30 a. M. You just saw where things stand. Thou leading futures down 852 points. Bloodbath in the selling has accelerated all morning. That is the story and we turn our attention back to europe because greece is once again in the headlines for lawmakers in greece are looking to forge a new government and seeking the resignation of Alexis Tsipras. What does that mean for the bailout deal that tsipras negotiated with european creditors . Tom mckenzie is following developments in athens and he is with us now. Tom, a breakaway faction of tsipras own party is trying to their own government. Well to be successful or are we headed toward elections next month . Tom it very much looks like we are indeed, because it seems like the 25 that split away from have a few days to do that. Theyre going to use those three days to maximize their publicity and get their message out to reach out to other hard court groups in greece to maximize that. Soy had very little funding it is certainly on the backs. It will beday where likely that the president in greece will dissolve parliament can we are looking at campaigning kicking off thursday and friday. That will officially kick off. Erik this raises some questions about what we learned back in january where they swept on promises to and austerity and get a haircut on the debt with europeans. Neither of those were possible, of course. Iza that resonated with voters or was it more Alexis Tsipras . Tom he was the fresh face of politics and untouched by scandals of other parties. He brought some energy to the political platform here. It remained even in july with the latest polls showing that he remains the most popular leader. We need to see how much about popularity will be leached away by the new party. It is represented on the streets here in greece of the frustration that many seeds as a uturn when they signed up for this bailout. Erik we thank you for the update. That is bloombergs tom mckenzie. It does appear likely that it there will be elections in greece of that the resignation lexus tsipras will not be immediately successful. When we return here, dow futures down 852. My goodness, it is a bloody data indeed. Bloody day indeed. We will bring you up to speed when we come back. Get excited for the 1989 world tour with exclusive behind the scenes footage, all of taylor swifts music videos, interviews, and more. Xfinity is the destination for all things taylor swift. Great time for a shiny floor wax, no . Not if you just put the finishing touches on your latest masterpiece. Timings important. Comcast business knows that. Thats why you can schedule an installation at a time that works for you. Even late at night, or on the weekend, if thats what you need. Because you have enough to worry about. I did not see that coming. Dont deal with disruptions. Get Better Internet installed on your schedule. Comcast business. Built for business. It is a monday here in new york city. I bet a few of you are wishing that we could postpone the opening bell for one day. Just suspend reality for a moment. The opening bell is a few minutes away. Me weisenthal is here with and he has got the three things you need to looking at for also this manager. Monday is trending on twitter, one of the rare times ive ever seen a market move or anything in finance and economics trend on social media. It really tells you that people are noticing this one. I also saw that the stock market was turning on facebook with the black monday. People are tweeting about it who normally do not tweet about markets. In the past, we do not have the social media to gauge public moves like this. Now we can see which stories are sitting out to the public consciousness. Erik i like that you brought this up and that in 1987 and we didd 1998 and 2001, not have social media. Chris, how important is it to of the man on the street with a man on twitter, who is not necessarily, as joint point joe points out, an investor . Chris we have had periods of fear and uncertainty in the past. Twitter and social media is only perpetuating and raising those varieties and fears more than it would have in the past. Absolutely. 8, 9,ny corrections 10 corrections of the bull market began in 2009. I can think of a couple when we had the bp oil spill. We had a mini correction there, especially in the Energy Sector and a nice rebound after that. More recently, it was august of 2011 almost four years ago when the s p downgraded the u. S. Debt. I can remember that i was on vacation and seeing the market down 400 points a day. Q4 of 2011 was one of the strongest rebound we have ever seen. I just keep coming back to remain calm and stay patient and stay longterm focus. You cannot ignore this news. You have to Pay Attention to this, but we have seen many of these come and go. Typically, they have an buying opportunities if you are patient. As anit is so important investor can what is number two on your list . Joe two South African rand. Intraday chart of the rand was crazy. We saw this massive plunge. There is dollar rands and a huge move to over 14. That was one of the more dramatic moves that i can recall with any of these currencies. Speaking of social media, in south africa, the stronger than. He rand started trending someone said, one ply toilet paper stronger than the rand. Even in that selloff, that was pretty intense. Erik one thing i wonder that is that the japanese yen strengthened by 4 today. Joe you saw this incredible dollar bullish and that everybody ought people will be bullish on the dollar. It is not necessarily negative on it, but the expectations of the september hike are off and people are buying the euro and the yen. Erik we have heard the open exchange of the nyse and the nasdaq and the selling will be vicious. We are down almost 500 points on the dow, but the numbers keep dropping. Im trying to keep pace with it, an excess of 52 on the s p 500. In both cases, good for a drop of 3 . The nasdaq is truly where the action is, down more than a percent. Joe that is unbelievable. Erik chris, you preach patience. It is tough to be patient when you see markets moving this quickly. Chris it is very tough. Vance, we are focused on high quality investing, stocks that have longterm Sustainable Business models, kipp a solid dividends, have stable earnings. We like areas like Consumer Staples and consumer discretionary. We think u. S. Consumers are in good shape. Anden with low oil prices jobs. Even in those sectors, we like telecom and health care. Staples or home depot think of staples or home depot. Those of the kinds of stocks that we tend to own right now. Highquality dividend paying stocks, ones that can really weather the storm that we are seeing th right now. Erik chris, the s p 500 is officially in correction mode, dropping more than 10 . Going with this idea of patients, at what point, or for how long to close your eyes, plugin nose knows, block off your ears and wake up like rick winkle and how many days from now . Chris corrections were long overdue and they are healthy. They were stretched in the market at 17 times earnings, exceeding where the fundamentals were. At some point, you go back and work on your models. We have a team of analysts fear that we work with. When those valuations come more in line with the fundamentals and theyre closer with some of the names i have just mentioned, which happen to be names that we own across many of our products, that is when you feel confident to begin adding. Name, it is a name by stock buy stock exercise. We are not technicians. We are not looking for a certain level of the markets to all of a sudden say that is the signal to buy and we are in. We look at technicals and we do Pay Attention to that. It is pretty ugly right now. There is no bottom inside. Insights. We have seen these before. Prosnk a lot of investment are on vacation. Erik i think they are back at work this morning, where they are here or in the hamptons. Chris, hang on one second. Joe weisenthal is still with us and we are going to get to the third item on his list. First, we need to check in with julie hyman for a market updated im looking at one headline. The european benchmark heading for the worst day since 2008. That is broadly reflective of what is going on in stocks. Julie you alluded to some of these that we were watching this morning. Let us look at the major averages if we can. The huge selloff we are seeing is particularly acute with the nasdaq down 8 the Circuit Breakers on th a percent. Ive not run the numbers yet because the session is just beginning in terms of one is the last time we have seen the drop of nearly 1000 points on the Dow Jones Industrial average. Us take a round trip of what we are looking at. You mentioned the corrections. 21s is from the high on may through trading today. Rightt it from close to now, the s p 500 is down 10. 7 . The nasdaq in a correction and the dow in correction. Now that we have entered that correction of at least a 10 drop, where do we bounce from your . Here . Seven people have been calling for that correction and a flushing out if you look at let us look at these stock movers today we have been watching these momentum stocks. We have watched the fab five these are the leaders of the year and the momentum stocks. They are selling very sharply. These are the companies that are now dissolving. It is not just them. You just just mentioned high dividend yielding stocks as a bluechip stock. Electric like general that has dividend yields at 4. 4 is also selling off. General electric down very sharply today. Speaking of oil, let us look at oil prices again. Commodityen oil and prices being in indicator could it is trading at the lowest since 1999 with an index of 22. Crude oil 38. 25. Not below 40 but below 39 this morning could want to take a look at treasuries as well because we are seeing buying and treasuries as people shift yield around 1. 92 is the for the 10 year. You were talking about the dollar and i wanted to bring it up he cuts it is that a seventh month love yw. Lower asding sharply we watch the big selloffs. Is a risk aversion. That would be the big theme as we look across asset classes. Erik thank you very much, julie hyman. Chris sunderland is still with us from eaton vance. We have wiped out gains all the way back to february 2014. Todays drop on the down in times in excess of 1000 points, the biggest since 2008. Are you looking for value or do you wait and for how long . Chris i do not step in right now. The selloff will continue in volatilities here for a wild. And i wouldexpect behold for that we could see some positive news out of china this week. That is the overriding concern chinas growth concern. If they step up, and you mentioned cutting Interest Rates or lowering the reserve requirement, there are a number of other things they could do to inject stimulus, things on the tax front could they just allow the government Pension Funds to invest up to 30 in the stock market. There are number of things they could do. They could cut that quite a bit further. I would look to Something Like that. You come in one day and you see that bounce and all of a sudden, a little bit of calm this coming back into the market. That could be an opportunity to go back into the market to keep the powder dry. Erik joe weisenthal, your number three item. Joe there is a real economy affect, especially in commodities can we saw the ceo of test the metals slamming market vandalism for the refusal to cut back rushing crushing prices in commodities could we saw the commodity ceo last week talking about blaming shortsellers and the copper space. It is one thing to look at stocks in the correction. When you go to that, you see a major wealth aberration a major panic from some of the people in this industry. Theho do you blame commodity producers or highyield investors who finance them . Chris i think some of the producers are to blame. I come back to again that we had such massive overcapacity. This is a global credit bubble we have been in. I come back to china, led by china and the a lot of emergingmarket countries. What we are seeing impacting commodities and any other credit related instruments as a result of this deflating global credit bubble. While some producers are to thee for the oversupply and decrease in prices we are seeing, it is largely a demand issue. This massive slowing of Global Demand led by china. It was only a matter of time. Justtronger dollar, not recently, but too long ago, was a contributing factor to weaker commodity prices. I do not know where the bottom is in that. No one has been able to time commodity prices. That is for sure. We are staying underweight of Energy Sectors but that could be an opportunity down the line. We say underweight there. There are a lot of dividends in the sector with a few highquality Energy Companies at risk of getting cut as well. We are paying attention to. Chris sunderland is the director at eaton vance. D, joe weisenthal, anchor of what did you miss . We are talking to an investor who says the stock market was inevitable and he will point out the warning cracks when we return. Miss of the in the biggest selloff in u. S. Stocks since november 9 of 2011. That is measured by the s p 500. In the case of the doubt, it is more than that. The nasdaq you will see is down 4 . It is in line with the other benchmarks. It had earlier down more than 8 . A great deal of volatility in stocks early this morning and a lot of that has to do with apple, which sold off to the tune of 12 and it is now down from its Closing Price on friday. Marketsounding out the. Michael, let us begin with you. There was hope that banks were well positioned to benefit from a growing u. S. Economy and demand from credit and the ability to charge higher Interest Rates. Midst ofwe are in the this market bloodbath, it is hard to describe it meant anything else. Fromding to peter fisher black rock, a september rate hike is likely off the table. Michael you are starting to see people to push it to december or even 2016. It depends on how the banks are positioned at that point. Whenever there are stairs for a financial crisis for banks. Bank of america is often seen as the most benefiting from a rate hike. They are very acid sensitive and have a lot of loans. Seen as somebody who might hurt from waiting longer. Wells fargo came out and said last quarter that it is going to be lower longer and will position ourselves for that. They will benefit relatively. I think all the banks on an absolute basis what rates to. Go up. I think it is a relative within the banks. Overall, it is not bad for them. Erik they appear to be reevaluating. On friday, almost all these financial stocks sold off in excess of market benchmarks. Today, they are selling off less than the s p 500. Michael i think part of that is that at least at the big banks, you have more capital. You have less inventory. There is not going to be this shock from Something Like this. Erik you are not exposed the same way they were in 2008. I want to weigh and actually because i have been looking at the dispersion of highyield bonds. Highyield rated bank bonds are the one sector of everything that has generated a positive return. Point,r words to your michael, about how these are perceived as being resilient, we are not going to necessarily see another lehman moment any next month or two months where you have an entire Financial Institution that collapses erik . Erik youre talking about subordinate debt. Is there a single bank of america that does . Lisa this would actually be what is on the hook is a bank does collapse. To the extent that this is actually the one spot that is doing so well, or at least not losing, like energy down more than 6 . You have proof to your point that people are viewing banks as more resilient. Erik what has caught your eye this morning . There are a couple of threshold levels are good the first one being the level one at 7 . We are at 4. 5 now. We could get there. What happens then is a nice 15 minute time where people will catch their breath a little bit and reassess what they are doing and maybe weves can carry on. The on that, the 13 at level two is definitely on peoples minds. That ismething definitely going on. We have some conflicting views of the longterm direction of the market. Re is a gentleman named ram doug ramsey. Erik he will be on in a few minutes. Joseph he is a longtime bowl and told people to keep buying when things were looking a little awry and he has been right for about the past three years. Erik he turned bearish. Joseph a little while ago, he noticed some weakness in the markets for some time now and he is calling for a 50 20 pullback give on the other side, you have laszlo greenlee, and markets stallworth, and he is more of able. A bowl. He said that we saw this coming down from the tight a long time. It is not much of a third so get our ducks in a row. You have risk assets selling off as quickly as they are right now. What we have not yet seen is a complete meltdown of the credit market. As far as im aware, i want to check in with you. There are concerns over liquidity in the bond market beginning to bear fruit. Trading volumes have been somewhat lower. Let us clear that it is not like a freeforall where people are really able to trade like they might want to. Seeing the two biggest junkbond etfs down the most since 2011. There has been some selling. It does not feel frantic. Frankly the people im speaking to are looking for buying opportunities be some are tepid opportunities are abducted people are seeing that andds have come out so much they are highyield again. You are seeing some air pockets and bonds that are just plummeting. Particularly in the metals and mining space. In general, there has not been a sustained feeling of this is not going to end. You are starting to see some stabilization in some spots. It is interesting. Erik is it successful liquidity . For the real test liquidity would be a mass exodus from an etf or a mutual fund that causes that spiral that people are worried about. We do not know because we have not gotten the numbers yet. There was outflow from emerging markets. It was pretty substantial last week. There were some inflows to jump bond funds, but they were outflows to etfs. We have not seen that x list that a lot of people have been expecting. That would be the true test of liquidity. To that point, one big concern that people have is if there is something out there that will have liquidity people are looking forward to these. Bring in dougo ramsey. He predicted stocks would go down and they declined 4 this morning. Talk about what you are seeing this morning. I certainly would not be a buyer today. From the Technical Work we have done over the years, experience downychology a vertical like this is not something you want to step in front of. Cannot yet make a Valuation Case on this market. Where would valuations need to be for you to make a Valuation Case . Forecast, is not a but when you get down to 1500 or 1600 on the s p, things get interesting from the perspective that normalized earnings on the s p 500 are around 100 a share right now. If you were to get down to 15 times normalized earnings, which would put you right at 1500, things get interesting. That is not a projection. Just showing how overvalued we have got. Is china dictating the move or is this some fundamental concern about what has been going on in companies in u. S. . Doug i would take a look back at last year. We argued during the year that the tape removes remember seven tapering loose. They seem so long ago. , yourom january to october th took bond buying down to zero in the space of nine months could policy moves like that have a lag time, primarily to nine months. It has been 10 months since the fed initiated that last tapering move to know qb. I would like to think that this market weakness maybe it is just a reflection of that lack impact of what, in fact, with the benefit of hindsight now, we are tapering loose. That could be i responsible in part for emerging markets and policies of last year. How much of this is about valuations and how much are you concerned about behavior in terms of selling and funds having to contribute to the selloff . Doug valuations we have been complaining about for a very long time. We stayed the list for quite some time largely because of the internals that were going up cohesively. What bothers me to some extent investors even in the last uglyear markets were very good we are not expecting Something Like that again. A 57 are they were by and large buying bear markets that gave you plenty of opportunities to get out. That fostered complacency. If things turn sour, i can pull the ripcord and moved to cash or bonds. We talked about something internally about the principle of alternation. To bearwhereby the last markets were longterm grinders. They gave you plenty of opportunity to move to the sidelines. Maybe we are set up for something that is much more rapid or you do not have a chance. That is certainly what we are seeing this morning. You have long said that this market downturn started in december last year, december 29 to be exact can you go into more detail about what that signifies and how you went about getting ahead of this call . Doug the transports when they topped out on a relative aces late last year, that was a tell in the sense that the transports certainly had been a very powerful leadership, at least from the fall of 2011. That caught our eye. The one of ag number of things. Again, i would probably put the internal top on this bull market in late december. You could argue keep in mind what was an excellent warning last in 2007. Credit markets. In june of 2014. Im talking highyield credit. Later in the year, we start to see industrial cyclicals good we started the seat utilities and all these things pop out in the spring. Topas not like a textbook and the perspective that smallcap stocks remain relatively strong. They actually after the s p by about a month. Financial stocks also held up after the dow and the s p. Thoselatter two groups were unusual. We argued that you cannot wait for every single checkbox to be fulfilled before you move to a bear position. Those were sort of the two with the benefit of hindsight may have faults some investors. Typically smallcap stocks and financials peak out in advance. Erik we have to leave it there. Doug ramsey, michael, lisa, and joseph here with me. We end the show that the s p 500 is down the most since 2011. The nasdaq down the most since 2011. Olivia good morning. It is 10 00 p. M. In shanghai. Welcome to bloomberg market day. Olivia good morning. We have to get you straight to a market check. There is no stop to the bloodletting. Stocks, commodities, current cies plunging worldwide. At one point in the open, the dow was more than 1000 points down. 500 down 82 points or not. The nasdaq off more than 200 points. All the main u. S. That smart indexes officially in correction territory. That they are often percent from the most recent peaks. The selling started overnight in asia with the shanghai composite fell for the single biggest a drop since 2007. The emerging markets index off the most since 2011. In europe, the stoxx 600 heading toward its