Transcripts For BLOOMBERG Market Makers 20240622

China is now falling back on its major levers to stem their biggest decline since 1996. The shanghai comp positive dropped 7 overnight before policy moves took place. They came in after hours. The besthat some of minds have been saying about china. I tell people be cautious because i dont think china can come up that easily with a solution overnight. Complicated situation and Financial Markets is not the first thing on the radar screen. Thats why this market is trying to find its own level and its clearing at a much lower level than most people have expected. I think the market is very oversold. Over 1200 new lows, 12 month lows on the new york Stock Exchange. Usually, this occurs at the end of a bear market. This has occurred at the beginning. This is a signal that something is very wrong. Dont get excited, take a few days off, wait for the market to stabilize and then come in. Dont be afraid to buy when everyone else is selling. Dont do it in a rush, take your time. Julie hyman is with me and so is liam dalton. We heard a few opinions right there. They sound like they are making sense but who makes the most sense to you . I would say its a compendium but the most sensible thing to do which is something people dont typically do on days like yesterdays it rarely serves you well to think in the present sense only when it comes to Financial Instruments or markets. There has to be a sense of where you are in the realm of technicals and fundamentals. Yesterday you had a sense of a climactic selling more than the beginning of something. It was three or four days of selling and we had the big splash down on the open. If your mindset is focused on the present and you react rather than are predictive, that is painful. Onie yesterday we had it highvolume, the highest in about three years in a single day. If people are looking for what can call capitulation, it set the stage for rebound and you wanted on highvolume. The buying that we are seeing this morning, the rebound and european equities and u. S. Futures, whats happening was happening before the chinese rate cut. It only went up by half a percentage point. Julie we are seeing that gain in anticipation of that action but it was already happening. A long short equity manager and oversee 3. 5 billion. What were you doing yesterday and friday . What we always try to be theared for is in the event Market Experience as a dislocation, we dont want to have a fire drill and think what we want to own in the middle of that. We want a list that is already prepared with the names we want to own or whatever volatility is happening. We were buying certain names yesterday. We were in a defensive mode for ane past few months and had up down market where we have not gone anywhere else and there has been a number of price deck with dacian with hundreds of stocks. Erik you had a cash position and you are waiting to put to work or were you selling and buying at the same time . We were more an active buyer. The selling yesterday without exception was probably a bad idea over the short term. Erik everybody wants to know whether what we see happens today if it amounts to a gain of five points or more is whats referred to as a dead cat bounce. I was looking at the historical figures and we are not going to see one of the biggest ever percentage point gains for the dow. We would have to be in a 10 range. Nonetheless, the biggest gains that have taken place on the dow overtime have come during some of the worst years. A powerful rebound is not necessarily suggest that the market is in recovery mode. I dont believe it does. Oflive in a world now highspeed, computerdriven trading were oversold an overbought conditions are met with rebalancing. There are hundreds of supercomputers out there trying to take advantage of people who are expressing their opinions in a less sophisticated manner. The real thing to do is to think in terms of lets take the chinaix years we had a recession followed by an epic rally and we went into a sideways chop. Chart, was in a one day it would be different. We are having this recovery rally. We know how powerful central bankers can be so we are in the aftermath of that. It will be much more productive if you spend your time focusing on the individual companies and where to invest. Erik we will take a break from the markets because we need to bring everybody up to speed with todays top headlines. The price of oil is rebounding a little. West texas intermediate crude has been up as much as three percentage points. It dropped yesterday by more than 5 . Since june, it has lost more of its eye on government figures out tomorrow roseshow that stockpiles again. There is a rare agreement between north and south korea over the military standoff. North korea lifted its semistate of war in and regressed and regretted landmine explosions but south korea has stopped Radio Broadcasts across the border. If proven, the accusations against Hillary Clinton could hurt her plans. The odd rift is the one involving destruction of government documents by somebody who is their custodian. That is a felony and carries a three year penalty but it also carries a permanent disqualification from holding any further office. Erik he is nonpartisan. He was attorney general under george w. Bush. There was better than expected sales in the Second Quarter for phones and other items from best buy. They are trying to sell off overseas units and focusing more on its United States market. Fear the walking dead premiered with the largest audience ever for a cable series. The zombie series is a spin off of the walking dead. Whats the difference between the two shows . Do you watch the show . Erik no. Julie zombies are coming to get you a you are one of those. She got you. Zombie markets and zombies on television, those are your major headlines. Lets go back to china for a moment. They are cutting Interest Rates this morning after the stock market plummeted to its biggest decline since 1996. Most 20 years and officials have halted intervention and the stock market this week as policymakers debate the merits of a Government Campaign to pop up share prices. What does the rate cut suggest . What does it say that the chinese have decided to stop intervening in the stock market . One of the economic fundamentals and china in the last few months have been pretty bad. Exports are down and Industrial Production is down. This really addresses those broader concerns. When you look at the market, its a Market Driven by margin lending and trading at bubble valuations. Its 60 times earnings as opposed to 20 four the s p 500. I think the government was looking at letting the market go where it wanted but on the other hand, trying to address the fundamentals with the rate cut. Policies think the that seem to be more reactive than being ahead of the game are having the opposite effect they should . The markets may be disasserting the notion that they are in control in the markets are imposing these conditions on the policymakers in china . Question that the government moves in the last raisedof weeks have questions about their credibility. There has been the notion that the government was making the economy go where it wanted to when it wanted to. After quite a bit of silence, they have now jumped in. Whereame after months they were talking up the markets and telling people to dive right in. After that, came the plunge. Throughout this whole thing, it has been a question of what the government in tensions are and itts it up to and how will be able to manage such a complex economy that appears to be sinking into deeper trouble . Julie thank you so much. That trade infs the u. S. Are also rebounding. Somet to bring you reaction to the Global Markets to that news in china more broadly. Looking at metals and currencies for a different kind of reaction free from contagion in join a in china. We are probably going to see a turnaround tuesday after the massive decline yesterday and we definitely see it in copper which is up about 2 along with other metals. The safe haven and currency yesterday was strengthening yesterday as the euro strengthened as well as the yen. They are weakening today so those currencies are weakening and the weaker currencies in the emerging markets are strengthening today. We see the South African rand a strengthening as well. Erik thank you very much. Look at number three, earnings from bhp billiton on, the Worlds Largest Mining Company and it should not surprise you that they reported a fullyear profit declining 52 . Its public Commodity Prices in my cut their longterm forecast for china which is their largest customer. China canlieves that still deliver 7 gdp growth and the economy over there has become to bottom out. We will speak with him at 9 30 a. M. This morning. Ide i did not realize think of bhp in billiton but still making its its a guest line of business as well as iron ore. Erik they also do oil. Metallurgical and thermal. I want to talk about a deal monsanto has increase its takeover offer for agenta. Syngenta. Analysts think the deal is far from getting done. No to the offer. Monsanto has said it will not be increasing the deal unless it looks at the fundamentals. Was at least one winner in yesterdays big market selloff and that was virtue financial. Its one of the largest highfrequency trading firms on track to have one of its biggest and most profitable days in history. The ceo told the wall street that highfrequency trading firms emerged as the early beneficiaries. Warren buffett likes to be greedy when others are feel for all. Is this a good time to put your money to work . We will talk about stocks you can buy strategically. Later today, salesforce. Com ceo and cofounder will tell us why he does not like the unicorn mantra when it comes to valuations in tech companies. You can see him at 4 00 p. M. Eastern time. Liam whether this is dalton. Longshort equity manager and you manage 3. 5 billion are you met long or net short . We are a bit neutral at the moment and are active. We ship that around. Think there will be a very different experience the next couple of years. 2010 where everybody was on the same page and economic fundamentals were just sailing along. We have divergent Economic Performance showing up in individual stocks and sectors. My view would be to take the position that if we are going to seep right movements that will pick up and down, pick your names and know them well and look for companies that will be sponsored on dips which means greatmanagement with businesses and cash flow and income streams that support the price and future price. When those lights are flashing on the screen, these things are tethered to actual businesses and those that are the things you should be focusing on. Erik what do you like . Positions would be apple computer, Liberty Media 12 when apple was down yesterday, did you buy . Get the bestd not price. I think it got down to 92. That is the nature of letting the markets stabilize to some degree. Apple presented a opportunity because if you look at the numbers, we are now dipping into singledigit earnings. Most of the stock is in cash. You pretty much get the device business for free. Erik why liberty and why charter . They have excellent management. John malone created more wealth at liberty. Dominant positions growthrter is a great position merging with time warner and will continue to grow. Low free cash multiple and Similar Properties for liberty which is a bigger entity. Liberty presents an interesting opportunity for them to monetize your either a combination of his mrs. With of businesses with vodafone and europe but having a big footprint outside the United States. Erik john malone almost jokingly a few months ago floated the idea of buying global because liberty is a far Bigger Company in terms of subscribers. If investors come around to the idea that the subscribers ought to be worth something similar to what subscribers are worth in the u. S. And maybe hes got something. I would not sell the idea short. Small of acquiring large has been a frequent circumstance in the past year or so. Dynamics are so different and he would be the kind of guy who could put off. Erik some concerns have been raised about some other Hedge Fund Strategies like a risk parity. Being tied to the decline that came in 1997. My concern is for leverage factors that gets funds in trouble. Managing thesee portfolios but nothing is ever future tested. Its all back tested. It increases the high multiples. Thats when you are in danger. Test theish i could future but that would require a crystal ball. Thank you for being with us. We will return after this very short break. 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. 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. Erik thats what u. S. Equity future indexes look like and we are set for a rebound in the u. S. Stock market and that is happening in europe. Up inropean averages are excess of 4 . The Chinese Central Bank is trying to stop the route in its stock market since the fifth time since december. They cut Interest Rates and lower the amount of cash the chinese banks must set aside. Fellhanghai composite more than 7 after the most recent policy moves. The chinese. Margaret has to client 22 since last thursday. The ceo of Allie Babbitt is urging workers to be focused. Alibaba fell below their market price. They have lost 120 billion since its peak in november. The workers were told is not the last time the stock market will plunge. Sales and earnings were lower at the biggest luxury homebuilder, toll brothers. Byt may have been caused Mortgage Rates months ago. The average price of a home was down 1 . The National Rifle association and other gun Rights Groups are suing seattle over a new tax. The Seattle City Council voted to impose a 25 tax on each firearm purchased. There will be a two cents tax on each were ammunition. Tax inll spend the court. Those are some of your top headlines. Destruction, anxiety, and nervousness is what our next guest saw in Financial Markets the last couple of days but risk is back in vogue this morning. Is the rebound on solid footing . Michael james is with us. From los angeles. We will see how long the rebound lasts but how solid is the footing . I dont think anything is on solid footing now. The doubt when down 1500 points in the last four days and its nice to get some of that back but i dont think anybody feels comfortable that the morning gains will be held. Higher, the only thing that is guaranteed is that volatility will continue. I think we have to get accustomed to multiple 100 point 100 point dow moves. Nobody would be surprised one hour into the opening of we have given back half of the early move up or extended the move another 200 points. That is the type of environment we are in. Significant price swings will be the norm. Erik there is always did a distinction between the Way Investors are thinking in the way traders are thinking. What is the difference today . Traders are hypersensitive to significant shortterm price moves. Investorst have seen piling into stocks in the first five and its just a morning but you had traders looking to capitalize on opportunistic price this location, stepping in in a big way. You look at prices you rarely see in several years that you saw yesterday morning in big names. Apple, facebook were down over 10 on the initial prices yesterday morning. You had traders looking too aggressively capitalize on those. If they had come after the market have been up the previous five days, it might not have been as big a price move down. Comingring we were down into yesterday and be down 10 on top of the move we already had, traders were looking to be very opportunistic yesterday morning. Were covering if you are short and those with flat positions looking to take advantage of the price just locations. Erik we have been told for months that volatility was coming. And we have seen volatility accelerating over the past five days of trading. Why is it here to stay . Seeont know if we will the same type of volatility two weeks from now. Based on what we have seen in the last four days, for the rest of this week, i would certainly expect the level of volatility to be significantly higher. It should moderate a couple of weeks ago from now. In the next couple of days, i think these type of outsized price swings will be the norm in both directions. Moderates but it when you look at what has happened for the two weeks leading up to the market move down starting last wednesday, there was a deterioration in the underlying fundamentals of the marketplace. There were it not as many stocks making highs and many were making lows in the quality of the market was deteriorating. There was a heightened sense of nervousness coming into the middle of last week. You can only test the s p 500 so many times refer that was going to break. Awares and investors were that we can only test this summary times and if it breaks, it could get ugly to the downside and thats what happened. Weted 20 75 last week tested 27. 5 last week and thats what happened. There was an unleashing of significant significant selling pressure over a couple of days. We started trading around 2050 things unraveled quickly. Erik how do you take advantage of a market like this as a traitor . You have to stay nimble. We clearly have gotten extremely oversold. Its easy to day you should have in buying stocks yesterday in hindsight, nobody is smart enough to do that. I think you have to be willing to not only be buying stocks on significant moves down as we saw the last couple of days but climaxing yesterday but you also have to be willing to not expect a oneway market. You have to be willing to sell stocks if they are going higher. You will see people more than to be making sales near yesterdays highs which is right about where we are to start the day. There is no question you will see traders selling into this move but may be some did not come in long and will have positions to come in to the strength looking for any pullback to start buying stock. I anticipate that happening. Erik thank you so much. Much more on the markets ahead as european stocks are rising and u. S. Index futures are pointing higher. We will have insights for the trading day ahead. Aik we are witnessing powerful rebound in u. S. Equity Index Futures and in stocks across the continent and in london this morning. A lot of it has to do with valuations as investors and fitting are coming around to the idea that stocks were perhaps oversold yesterday but also getting a lift from china which announced yet another Interest Rate cut after the conclusion of trading in asia early this morning. European markets are up. Lets go to london. Out is just how drastically different the markets are looking from yesterday. The stoxx 600 had its worst day since 2008 yesterday and today that equity benchmark is heading for its best day since 2011. We saw the germany dax index heading into a bear market down 22 from its peak and its rebounding today. Its down about 18 from the peak. The ftse 100 is rebounding from it 2012 low. Yes, we have seen action from china with a cut in Interest Rates for the fifth time since november and its lowest reserve ratio requirement for banks but this rebound was happening even before that. Early this morning at the open of european trading this seems to be about that yesterday stocks were a little oversold. There was a lot of panic selling where thesee point indices have reached at the Technical Levels where you would expect them to rise again. What does it say which financials which were badly beaten up over the last couple of days are the third leading mover in european stocks this morning . We are actually seeing all Industry Groups rising today. When i say its a broadbased, you are seeing pretty much most shares gaining where as yesterday use of pretty much all of them decline apart from three. Yesterday we were talking a lot about the fact that we are seeing this route in china but highs, theecord Stock Exchange in china, and its one of the best performers of benchmarks around the world. Does that mean the rally we are seeing is temporary or will be more permanent . That is the big question and we will see what happens tomorrow. Erik thank you so much. Meantime, u. S. Equity Index Futures are way up in early trading. It looks like we will have quite a rebound at least at the open. To draw ours here attention to some things worth keeping an ion. They made somek good points the fact that we were up before the china news came out. That makes me wonder if it was a natural rebound that people thought that this was the time to bite or were they anticipating some kind of move from china . Its a tough question and impossible to answer but maybe a little pub oath. This is what volatility looks like. The last time we saw anything like this was 2011 when the u. S. Debt rating was cut. 400 pointit was a update and it was back and forth. Its anyones guess what the next move is. This opento see that wont of a market this open oft has this open wound a market, the bleeding has stopped. Does this set the stage for a healthy market . They call it a dead cat bounce. There are false bottoms that can occur. Erik some of the biggest rebounds like in the dow, some of the biggest rebounds in percentage point terms came during the worst ever years for equities. We were here in 2008 watching that happen. The blockbuster most of the upside after some ugly stretches. What is remarkable about this drop is how sharp and sudden it was. Not only that but you talk about leadership. Financials are leading in europe today. The dispersion among the groups is pretty tight. Everything was down big yesterday and everything is up big today. In 2008, we could point at the banks and that was our canary in the coal mine. In this case, its a sell everything and buy it act the next day. Focused its not a concern on one sector. Erik we had only six stocks up yesterday. Resources. Ike agl some of the ones that were up or stocks mountain that had taken a big hit yesterday. They found their bottom before the rest of the market. It is interesting. Erik we have to leave it there. A great overview. Many were expecting the fed to raise rates in september and that sentiment is changing after the ripple or anchor we had in global Financial Markets. Stay with us. Erik the whole day or want they . That is the question for fed policymakers. Will they or wont today . Many are saying the sell off and the market volatility of the past few days is making forcing the fed to rethink its position. If the volunteer continues which it will then the fed will be very cautious. They will not want to fuel further volatility. In such circumstances, it will most likely wait and not initiate the Interest Rate cycle in september. The fed was in a box and needed an excuse not to raise rates. They got it in his global pickup. I think the fed wants to raise rates. The market would refer rates to go higher. We have to get over our dependencies. The artificial rates we dont need rates at zero. Its like a twoyearold threatening to throw at tantrum if you take away candy. You just have to do it. Lets get it over with. If the Federal Reserve raises rates in september and keeps going in december and does a gradually, it will provide some reassurance to markets. The probability of a september hike is already said seceding. September is unlikely to happen. December is still a possibility. Thin part of the liquidity situation for banks during the holidays. Global economy can handle it and the market can handle it. The fed is data dependent and they will see how the data comes in before it makes antidetermining factor about when it will tighten. Erik for more on when the fed may or may not raise interest the argument for a fed rate heart in september was in the absence of strong nominal gdp growth and the absence of inflation, its important for the fed to demonstrate it could raise Interest Rates. Certainly if they move now in light of recent events, its a strong vote of confidence on the resilience of the u. S. Economy. I think there may be something to that. Saw is whatt we happens when the market moves during thin liquidity. This is a case which is worse at year end. The movements over the last couple of days make the case even more for not doing something in december. Which shifts the odds back to september or october. Fed let me bring up the funds futures implied volatility. Its purely a reaction. 5 erik it is far from off the table. Its a far less likely eventuality than it was a week ago. Was 50 50 a week ago and we are under 1 3 right now. This is assuming we dont have the ongoing volatility. If stocks rise if we have 500 point swings in the dow every day, they certainly wont. We should get a recovery today and we will see what happens after this. If it looks like a late summer hick up and we sailed smoothly jobsseptember, we have the report coming up a week from friday and Industrial Production if there is not evidence of a Strong Negative feedback into fed mayomy, i think the be able to get away with a rate increase if they promise a one and done approach to monetary policy. Either september or october. They could say in september that we have a press conference in october. How closely does the fed look beyond price action in the market . Look at mergers and acquisitions which is signs of ceo confidence . Create thet want to appearance of coddling the Financial Markets. There are significant economic feedback mechanisms from equity prices. If there is evidence of a significant negative feedback, they will err on the side of caution. There is not strong feedback, they can get away with a rate increase. Emphasizing that its the pace they are after. They have to sell us the issue of one rate hike this year. Say 125 basis points per year and could be as little as half of that. Erik great to see you and thank you so much. Back, we will bring you another update on whats happening in Financial Markets. The appetite for risk is back and u. S. Equity Index Futures are up and so are 10 year treasury yields. Erik with a rebound under way ,nd u. S. And global stocks julie hyman is looking at some of the notable movers in premarket trading. Apple is down about 4 over the past five sessions and we have had analysts saying that people might want to look at buying. We are seeing everything rebound. Wells fargo is upgrading it to outperform this morning saying the correction is overdone. Tim cook offered some reassurance on the chinese business. A year to date chart of apple and what we have seen. It was at a record close back in february. Then it made a run at regaining that record back in midjuly. This is july 20. Between july 20 and yesterday, we saw a drop of 22 in the stock. It was a bear market. In the apple shares and then a rebound through this morning. Moveis the context for the heading into today for the apple shares. Likely helping is commentary from best buy after it came out with earnings. The apple watch sales have been strong. Says it will dedicate more space to apple products. Best buy shares are up strongly this morning after the company came out with sales that beat estimates. We are seeing the financials rebound this morning like jpmorgan being called the lebron james a banking. On banking. Good at offense and defense. Erik thank you very much. Those are some of the premarket movers. We have a few minutes for some of this mornings best pictures. Are we getting into a bear market . This bear does not seem concerned. He was spotted rolling down a hill. Tourists who were there delighted in the spectacle and captured it on film. It was a discuss a distressing day yesterday in traders reacted. Thatare some pictures pretty much say it all from london to hong kong to new york. Traders are looking graham and panicked. As the markets rebound, perhaps we will see smiles return to those anguished faces. Makershour of market is coming up and we will talk to the ceo of bhp. Erik good morning. Im erik schatzker. Stephanie ruhle is out today. We have a special guest taking her place. Youll see him in a moment. Meantime, it is a rebound in u. S. Equities futures. This does not guarantee we will see stocks rise at the open but it is a strong indicator that we may in fact have a 500 point up day on the dow and the s p 500 is up a three and at the three and a third percent. Lets take you to vonnie quinn in the newsroom. Month of theinal quarter showed another 5 increase in the price of homes across 20 u. S. Cities according to the shiller home price index. Nationally, home prices rose just about 4. 5 . Month over month we saw a percentof a tent of a when economists were looking for an increase of a 10th of a percent. Is aome price index lagging indicator of prices. It is based on an average of three months of prices. Ofis not the most immediate reads on the u. S. Housing market. Interesting nevertheless. You have Robert Shiller on later in the program in order to tell us more. Erik i cant wait. He is the cofounder of the case schiller price index. A professor at yale university. He will be here later to talk about stocks and perhaps real estate as well. Metabolix at top stories. The Chinas Central Bank is freeing up money to stop to support the economy. The peoples bank of china cut Interest Rates and lower the amount of cash chinese banks must set aside in the hope that they will lend it. The shanghai composite index fell more than 7 before the policy move was announced. The chinese stock market is down 22 since last thursday. Saudi arabia plans to cut billions of dollars from next years budget because of the slump in oil prices. The saudi government may delay or cut back on some infrastructure projects. Oil accounts for more than 90 of saudi arabias revenue. Shares of best buy are jumping. The worlds biggest Electronics Chain sold more major appliances than expected. Best buy said it would dedicate more space in its stores to apple products. The apple watch will be offered in all best buy locations by the end of next month. After a few hours, russia canceled the ban on the russian language wikipedia. The ban was imposed after an entry on hashish contained banned information. Normal inwas back to russia this morning. In do you describe hash russian but apparently is controversial. We are living up to our name this morning. Stay with us as i take you through to the opening bell. It he at is the appetite for risk back . Gary kaminsky, Senior Adviser for Morgan Stanley, cohost of wall street week. Welcome. Gary great to see you. I brought you a higher opening today. Erik you have had a long career in finance. You have been on the Wealth Management side. You have a lot of friends in the Financial Advisor community. I want to know what they are saying and how about investor behavior. And how it differs from some of the discount Brokerage Firms yesterday which were overwhelmed to a degree with orders in the initial minutes of trading. They were having trouble processing that order. Gary it is suggested that some retail investors, traders, were busy selling or buying. Investment is a hard thing to pinpoint what that means. Anyone who is not an Institutional Investor is by definition a retail investor. You think about longterm Strategic Asset allocation and planning, what happened last week should really not deviate from what your longterm plan is. You should always have three buckets of your money, money that you need and that money should always be in cash. That has always been the philosophy. Have investing capital. If you are trading on that investing capital because you figure you are a day trader, youre doing that because youre trying to trade the market. Erik they might be busy on a friday or monday. Gary maybe this type of activity was good for you. The conversations i had earlier this morning, who really made a lot of money yesterday because it is not exactly clear. You probably saw the story that were to financial, the highfrequency trader said it was one of their more profitable days. The machines had a good day yesterday. The question is, who were they trading against . What i do know is for the most part on the Wealth Management side, what Portfolio Managers and advisers were doing yesterday was they were looking for the opportunity to upgrade a portfolio. It means if you have got if you are managing capital money and you have tax laws, maybe you do a tax swap, sell something in industrial space, buy something that was down and you try to keep the portfolio you are actively it managing the phone folio the portfolio but not deviating from your longterm plan. Erik lets talk about highfrequency trading. It is easy to demonize these firms. Lots of people think it is unfair that they are armed electronically to take advantage of minute opportunities in Financial Markets. How is what virtue how is the money virtue is making yesterday any different from the money golden does Goldman Sachs or Morgan Stanley made . Gary i have no issue with height frequency trading. When the issue became a major issue after 60 minutes ran the piece, i did not have a problem. My attitude is, if someone can come up with a way to legally exploit the arbitrage, that is what capitalism is all about. I had to become a student to try to understand where the issues really were. What the issue is, it is not the issue that highfrequency trading exploits arbitrageurs, the issue is, should the Stock Exchanges be selling the feeds purchases ofin that access have an incremental advantage. Some people believe that is fine and some believe it is not. The issue is not whether highfrequency trading yesterday highfrequency trading provided a lot of liquidity that might not of been there. Erik we will take a break. Run a quick commercial. Oil is up to above 39 per barrel this morning. Our next guest says oil could plunge into the 20s. Erik you are back on Market Makers. Lets have a look at where oil is trading. 39, dipped into the 37th yesterday. Brent, trading a bit higher into the 44s. Our next guest says it may take an oil price in the 20s for us to see enough destruction for prices to rebound. Tom petri is chairman of petri partners. Morning. What i am saying is it would not surprise me to see it work lower. It turns a lot on what societies do. The report you had was important about cutting their own capital and infrastructure programs. That doesnt suggest they intend to stay the course longer. Theyre coming under pressure from the other members of opec. Theres an article in the journal about it today. Societies believe at the point that they can begin to see a rollover in u. S. Production and they have seen none so far, but when they do see it, i think that is when they will begin to change. It does not appear to be eminent. Late this year or early next year is more likely. The questions about china still cause us to have some real questions about whether there is enough demand growth to absorb what clearly is coming following the iranian accord, assuming it is approved. The signs show there may be a lot of opposition in congress but not enough to give a veto proof vote on it. Gary good morning. News go back to the saudi from earlier. My read on that was that those that have been waiting for the saudis to come out and say enough is enough, the news about cutting Capital Spending and looking at their own budgets is essentially telling those that were waiting for that, that is not going to happen. Its on like you agree with that. Can you push off for the next 12 to 18 months anyone whos trying to forecast the oil price because the saudis are not going to allow this to continue to fall . Tom we are in agreement on that, gary. I think that is what they are signaling. They are fighting a two front war. Lets go through the economics. The historical trend, the last several years, 60 of their oil revenues have been used to fund the governmental functions. Their military, security and the programs social programs three at 40 goes to saudi aramco. Saudi aramco only gets a little less than 20 per barrel. That is a not enough for them to run the program and keep their own productivity up. We are getting to a critical point. One of the points i have been making is the fastest route to getting back to a longerterm ,ustainable range of oil prices which i would say is Something Like 55 to 70 in the next couple of years and after that, more likely 60 to 85, the fastest route to do that is for oil prices to come lower sooner. There are producers in the states, in my opinion, the most reducer in the balkan has said, they are beginning to see that their productivity is going to roll over. When that starts to happen, if you get three or four months of a dip in u. S. Productivity, i think the saudis may be at a point with a start to rethink the strategy and without a big fanfare, begin to back off from the pressure they are putting on. Erik to what degree are Financial Markets helping the saudis now . To the degrees that equities sell off the should be sympathy selling in credit markets on the highyield side especially. If some of these highcost producers, the independents in places like the permian cant refinance debt that is going to be maturing, they will be forced out of business or into the arms of private equity. Tom i agree with some of that. There is no question what these prices are going to cause a relook by the banks at the money they have been advancing if only because in our next stress test if the banks have not made appropriate adjustments they will have a problem with the fed reviews. Debt thate other big has been put out his term debt. I think that is a longerterm problem with respect to the public debt that has been put out. Unless companies are at a point that they cannot service the debt. Most of them are. I think bankruptcies or forced mergers will rise to some degree. 3, 6 to 12 months. I think that will be part of the adjustment. It is something saudis are probably watching as further evidence that they have not just had a nearterm effect but maybe an intermediate term effect on u. S. Productivity. Erik i was just going to say we are running out of time. If you dont mind him a we will continue the conversation in our next interview. Great to have you with us. Tom petri. E. Heres a look at top stories. France is going to bestow its highest honor on a fourth american credited with helping to foil an attack on a train. Galian was saved by the other two came to the rescue. He is a teacher and artist who has lived in france for more than 20 years. He will receive frances highest order. Caricans are fed up with owners have not been this unhappy since 2004. Carsese and south korean scored higher than u. S. And european makes. Madden nfl 16 is now on sale. The new tronic arts games retails for 60. Those are top headlines at this hour. After six years, is the bull still running . If we look at fundamentals, the diagnosis or analysis could go either way. What about technicals . Degraff. Nd gary, jeff you are and have been for many years the highest ranked Technical Analyst on the street. What easy . What do you see . Jeff good to see you both. Things are not as cheery as they might look. Gary do they look cheery . Jeff before last week. We have this interior ration we have been seeing in the markets for six months now. It was subtle, underneath the surface that it was pervasive. This was the final crack of that. The good news is, the market has been oversold. 90 of the names in the s p making a 20 day low which is something we have not seen since 2011, 2008. Our trend model has changed from a lish to neutral bearish from bullish to neutral bearish. The first down take we have seen since 2011. It does underlie deterioration we have had under the surface. We think the last week has been a warning shot. We do not think we are out of the woods but certainly over and sold enough to have a rebound. Erik how do you illustrate this longterm view that has turned . Jeff we have a trend model. It bounces from five different stations. It is now deteriorated for the First Time Since 2011. Sharpe ratios are better for the s p when it is bullish. We have picked into that camp. Gary was the market overbought two weeks ago . Jeff the technicals overbought conditions are a sign of momentum. Will we look for our markets that are at a high but dont have the same type of dont not have the type of trust to them. There was about 50 of the s p had a 50 day above 200 day. There was this internal weakness that was developing and it finally hit. Gary i have had tremendous respect for technicals. I think that is been the best way to look at things. With almost every chart out ,here below its moving average how do you utilize technicals right now if everything is broken down . Jeff they are so bad they are good. Eight names in the s p are making a 20 day low, it is the baby out with the bathwater. People are indiscriminately selling. It is a shortterm tactical buy signal. The issue is signal versus noise. This is so extreme we think there is more than just noise and sort of something gary of the s p sectors, which one looks the best technically if you wanted to find a sustainable rebound . Jeff health care has the strongest internal trends, continues to look the best. We are not interested in charts that have that home formation that dome formation. Erik why do you describe it as shortterm . Jeff the trend has weakened in a way that it has not before. We have a machine we built that looks at analogs. The break is most similar to the break in 2011, the break in the beginning of 2008 and you have to go all the way to back to the 39. Ak of 19 in 2008 you had a rally before he went on to make new lows. In 2011, even then if you remember, we had the low in august, similar to what we have had today. The final load to not come until the beginning of october so you have a choppy market which grinds people up. People get terrified of the low and that helps set the bottom. I think there will be more volatility will have to endure. The biggest reason we are more concerned is the deterioration trend. The first time weve seen that in four years. Erik when you talk about volatility, what tells you . Are there technical indicators that inform your view on volatility . That tell you more volatility is in store . We have been told for months that volatility is coming. All of a sudden, it is here. Jeff volatility is so easy. I hate to sound crass. Volatility is a byproduct of credit. When spreads are widening, volatility goes up. Triple b spreads have been widening for a year. You and i were out in las vegas for the conference in may. Back in may the internal deterioration was starting to happen. We talked about how indexing was losing out to active management. Those under waiting energy were having a significant outperformance for those in health care. This is going on for many weeks. It is just now broken down everywhere. Erik jeff, great to have you here. Gary kaminsky and i will be back with you after this break. 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. Erik that is new york city on this tuesday morning. We are few minutes away from the opening bell on the new york Stock Exchange. Bloomberg markets manager, joe weisenthal, is here with the three things we need to be looking at today. Also, Morgan Stanley Senior Adviser Gary Kaminsky is still here. This is an opportunity for us to look at three things people might have otherwise missed, especially if they are if their eyes are trained on u. S. Equity futures. What are you looking at . Joe they did not miss it if they have been watching the show. Saudi arabia looking to cut billions of dollars. Erik both of us think this is important. Joe one thing that is interesting, oil has been coming down and we have this big emerging market selloff. Betting saudi arabia has currency pegged to the dollar. When you see a story in news that they are looking to cut budgets, that adds evidence to the fact that they are feeling a strain. Gary anyone who has been saying they think they will find a bottom in oil and we will get a rebounded to the fall is really basing it on the fact that they said the saudis have this budget issue, they will have to put a floor on it. Erik one of the reasons. This is there one most important argument. The argument sounds like it will be put to the side for the next three to six months. That is why that is very relevant. Joe we know emerging markets are having a rough time but some of them are having a rougher time than others. One in particular is ecuador. Everything that could go wrong is going wrong, in addition to all of the oil stuff there is a volcano that is problematic, protests in the streets. The president s popularity is at an alltime low. As you go further, we look at turkey, brazil but then you go further out into the frontier of emerging markets and you find these stories, risk reward of emergingmarket behavior during the good times. Things look really good but when things get week the institutions start to crumble and all the risks are exposed. Gary the president of ecuador does reality tv programming . I know that the president like to talk to the public through a program. Probably not a good sign. Joe we might have that here pretty soon. Erik unlikely to be the source of contagion. Joe there probably is not much global systemic exposure to ecuador. I want to talk about the yen. So much focus on the markets for the last few days but the yen has been on an extraordinary ride. Yesterday, during the stock market meltdown, the yen surged against all the currencies. You should look up the new yen, a dollar versus the 10 percent swing at one point over the last 36 hours. Finally it is getting a breeze breather. That is the craziest roller coaster ride. Erik we hear the bell ringing. The new york Stock Exchange and nasdaq have opened for business. We can say that the s p 500 is up 1 . The dow is up about three quarters of a percent. Futures closed dow futures closed up some 600 points. We should see more strength than we see right now. It does take a little while for volume to show up in the market. nasdaq erik tech stocks got beaten down yesterday. A good 45 seconds into trading and the s p 500 is up only 25 points. It we are not going to see the rally we thought we would see on the basis of futures. Gary minus rating looking at the dow, you have a lot of order imbalances. Here andthe by orders they are trying to sort themselves out on the big board. Erik we need to get to premarket movers. Joe, thank you very much. At 4an see joes new show p. M. Eastern time 4 00 p. M. Eastern time. Joe is not leaving the building. Julie hyman is looking at some of the biggest movers in the early minutes of trading. Julie if you look at stocks overall, as we look at whether we might the delayed might see delayed pricing, if you look at the overall averages, will 48 was invoked at the new york Stock Exchange. That means the Market Makers on the floor are not mandated to give indications. It might take longer to open up some of those stocks. When you have high volatility like this, it does take longer at times to get that price discovery so that is something to note that gary touched on. Overall we will see a rebound. We cannot judge much by the first few minutes of trading but we will see how it goes. In terms of individual stocks, apple is one of those he a comeback. The stock is down more than 20 from its highs of the year. Now it is rebounding. Analysts saying you should buy the stock. That any negative outlook or winning growth in sales has been priced into the shares. Wells fargo among those saying that this morning. Facebook and netflix rebounding. The stocks that are done very well and have been supporting the gains we have seen overall this year. The financial also got hit hard. Mike mayo is calling jpmorgan the lebron james of the banking world saying it is good at offense and defense. Citigroup on the rise as well as they participate in the rebound. We talked a lot about General Electric initially seeking a more than 20 drop and recovering somewhat. It is recouping much of those losses. We have been watching many of these companies that are heavily exposed to china. Lets look at china etfs that trade in the u. S. The first of these is the offshore china stock. The shanghai composite closed before it had a chance to react to that chinese rate cut. We are seeing it play out with these etfs. This is the a share etf, up by 4. 7 . Erik that is the latest in equity trading. We cant ignore commodities. The commodities super cycle is perhaps bottoming. A lot of it has to do with the slowdown in china and perhaps the best lens with which we could look at this is the worlds biggest Mining Company, the hp billiton reporting its worth underlying profit in over a decade. Shares of bhp are trading slightly higher. They have been hit hard including in yesterdays global selloff. Let us bring in bhp billitons ceo, andrew mackenzie. Good morning and thank you for spending time with us on bloomberg television. I think we need to begin with china. Currencyse of the devaluation but also because of what the chinese have done overnight and the fact that they are your largest customer. What gives you confidence that becausen grow 7 a year chinese behavior suggests that they do not have as much confidence in the target . Andrew we have been in china for a long time. We have a lot of data to see what was actually really happening. When they were growing in double digits, the data matched up with what we were seeing. Our data would say they are growing around 7 and therefore you can trust numbers. We do not believe that 7 will be there forever because they are transitioning to more of a consumptionbased economy doubled grow at a slower rate. Over the years, that will train down. Some of the things were seeing at the moment, rather than being some sort of traumatic effect, the inevitable shift from being more investment led to being more consumption led. We believe the chinese are managing pretty well. Erik could you quantify the importance of chinese growth to bhp billiton . For every percentage point china fails to meet that 7 target, what does it mean to bhp billitons revenue . Andrew we are not looking at headline numbers are you were looking at growth and demand for things like coal and copper. They go into a number of uses throughout china. Right now we are seeing reasonable trade flows into china. It matches some of the things apple has said. Despite concerns, product is getting placed. We are selling production quite a few weeks ahead. No evidence of inventory build. Goes. Steady as she erik here is one thing investors ask when a look at a company like bhp billiton or your competitors. Production in a low price environment . Reserves are your future earnings. Why not leave the higher cost production in the ground . Andrew we dont have higher cost production. We have the lowest cost production of iron ore. Us. Is a great business for all of the growth we are getting in production at the moment is because we are running pure productivity. We are not having to invest any more money so effectively we get more tons for no additional investment in those tons have a margin greater than 50 . This is a logical thing for us to do and in free markets, the lowestcost producer generally has the opportunity to continue to produce. If there is a reduction or a reduction in the growth of demand, it is up to the highest cost production, that is how free markets work. The low cost of iron or delivered more securely and we get a higher profit for shareholders. You would analogize the situation . Andrew i would say it is near identical. I think they have opened up to the fact that by ceding market share they are actually losing more than they might have gained by producing their market share and hanging onto a higher price. We would agree with them. For iron ore that is the game we play. In copper, oil and coal which are our other commodities. Erik the hp made some 2 billion in petroleum and for 65. Oil price what happens to your troll he a best to your Petroleum Business . What happens to your Petroleum Business . Andrew we have a profitable conventional oil business that is profitable at that level. The core part of our shale business makes decent returns of over 30 . Our business strength is the quality of our assets. We stress operational excellence. Willie run a business we have some of the best resources and we run them better than anybody else. We make money across all of our businesses. Erik you will cut Capital Spending further in the fiscal year, why not cut it more drastically . Its so much of that Capital Spending being put to use maintaining production . Andrew no. We only need about 2 billion of our Capital Spending to maintain the integrity of plant and equipment. The remainder is discretionary. It is offering us a relatively high return. We have cut capital by more than through increased capital efficiency we are still able to proceed with our growth plan. As we go forward, much of that capital is going at the things that are in excess of 40 . We continue to improve the economics. I think we have the balance right. Market ise and the tough, we have more flexibility on capital which we will use to maintain a strong Balance Sheet and look out for dividends. Erik what is the future of thermal coal in america . Andrew we will not be for much r. Nger we see a stronger market for coal in asia where there is less competition with gas and where it is far and away the cheapest form of energy. We would disagree with some of the extreme contrasts between on environmental records. We think they are similar in their contribution to Global Warming are you clean coal can compete with gas. That is an argument that seems to be lost in the United States. Erik thank you for spending time with me this morning. Andrew mackenzie with us from the london Stock Exchange. Yale University Professor Robert Shiller. His models say u. S. Equities are overpriced. I will be back with bob shiller and Gary Kaminsky next. This is the state of u. S. Equities now. Erik the question everybody was asking going into last friday, our markets overpriced . We got the answer friday and yesterday. To theut that question professor of economics at yell university, bob shiller. Robert good morning. Erik you are known for the cyclically adjusted price adjustment ratio. Peifferent way of looking at because you stretch it out over time and look at the sustainability of earnings. Bob as of close last night, the ratio was 24. Which is high. It was up to 27 last month. Today. Ee what it does last night it is down but still high. Erik as we are showing everybody the chart you provided us with 24 is high on a historical basis. What does that tell you about valuations in todays stock market . Robert what John Campbell and i discovered when we first did this series is that this ratio predicts the longrun behavior of the stock market much better than the conventional pricetoearnings ratio. It explains about a third of the variation in tenyear returns on the market. What it is saying right now is that prices are high as of last night so the market will probably have diminished performance. Still positive, maybe like 3 a year, but not as great as normal. Gary professor, i think people were buying and selling equities in the last two weeks are making the decision that the u. S. Is going to be in a recession next year or not be in a recession. Those that believe the country will be in a recession are the ones selling stocks and vice versa. When you look at housing data, is there any correlation you can leadtime between housing turning and when a recession hits and can we make a conclusion as to what the outlook is for this country next year as a result . Relatedhousing has been historically to recession. I dont know that there is a change in the pattern. We saw stronger housing correlation pattern in recent years. The latest financial crisis has been called the subprime crisis and was related to housing. Housing is just behaving normally. I dont see it as the dominant factor in looking at another recession. Gary does housing turn during a recession or before . Do you think the United States will go into recession into the 16 in 2016 . Robert according to professor leamer at ucla, residential investment has been a prime mover of recessions. A comover. I have not been predicting a recession in 2016. It would not be a surprise if there was one. Be stronglynk youd connected with the housing sector this time. It is a better market for building houses and home prices have been going up. I think if there is another recession it will probably come from Consumer Confidence from a general loss of confidence. Us arehat data tell things about human behavior. The behavior of investors. The fed is faced with a decision on september 17 whether to raise Interest Rates were not. Do you see enough evidence of the animal spirits your talked about to justify a rate increase next month . Robert the market is going to be on their mind when they make the decision. If it looks like it did yesterday, i think they would likely i would do the same. It is looking better now. It is very hard to predict what they will do in a couple weeks time. Erik what does the market tell fed policymakers about the state of mind of the investor and economic actor . Robert i have been worried about the state of mind of the economic actor. As you know, Big Stock Market movements have been connected in the past two major recessions. Connected in the past to major recessions. We could see more aftershocks from what we have just seen over the past 10 days and those aftershocks can shake confidence. They can get people into a panic mode. At that point it will be emergency time. It could happen. The fed would have to take action and keep rates as low as possible. Gary if the professor is right and the fed is paying attention to the daily moves of the s p 500, we are never going to raise Interest Rates. Every time you are on the verge of looking like money supply will be tighter, the market is going to act in a way that will never raise rates. ,ou really believe, professor that janet yellen is watching the stock market tick by tic to make a determination . I am not an expert on Janet Yellens in her thinking but i cant intner thinking. Experience. Nching it is the kind of thing, even if it is not on their agenda, their , a realistic person with take note of that. This was quite an event that we saw in the stock market over the recent days. Erik thank you very much. Bob shiller. Gary kaminsky and i will be right back. Erik new york Stock Exchange has been open for 24 minutes. Lets show you whats happening with julie hyman. Julie we are seeing this rebound in place as we get underway almost a half hour into the trading session. The magnitude of the game today is not as big as the magnitude of the decline. Seem to stabilize if nothing else. Seeming to stabilize if nothing else. We are looking at the relative strength index. This can measure for the s p 500 how oversold it is. When you get above this redline, maybe you are overbought, when you get below the green line, youre oversold. Yesterday were of most oversold by this measure that we have been since august of 2011. In other words, by this particular metric, we were due for a allens. For a balance. Erik Gary Kaminsky here for one final thought. You are looking at the dow more than 300 points. Gary i am they can about what professor shiller said in terms of the fed. I think people have to get focused. We talked about Wealth Management. Whether the fed raises or does not raise is irrelevant. What people are concerned about, what are the what is the fed going to do the next time youre in the recession. Is not0 basis points going to have the kind of ammunition they had. The next time when a recession, a fiscal policy to solve whatever happens. If you want to worry come worry about fiscal policy. Erik gary, great have you here. Senior adviser at Morgan Stanley Wealth Management. I will see you tomorrow. Scarlet good morning welcome to the bloomberg market day. Olivia good morning everybody in way bounceback we are seeing in the market right now. U. S. Stocks surging higher after the opening. Another bloodletting in asia, the Chinese Central Bank intervening and cutting rates for the fifth time since november. New home Sales Numbers out right now. We want to go to julie hyman who has the numbers. To an a rebounded annual percent. 5007000 versus the 510,000 rights that economist on average had been estimating. Showdoes