Transcripts For BLOOMBERG Bloomberg Go 20160309

Campaign,nie sanders the peoples revolution we are talking about, the Political Revolution we are talking about is strong in every part of the country. Frankly, we believe our strongest areas are yet to happen. Meanwhile, clinton did mississippi primary. Donald trump tightened his hold on the republican race, winning primaries in michigan in mississippi and one the caucuses in hawaii. The single biggest story in Politics Today is what is happening at the booth. The tremendous number of people coming out to vote. I hope the republicans will embrace it. Ted cruz managed to win the idaho primary. Trump now has 446 of the 1237 delegates needed to win the nomination. Vice President Joe Biden says iran breaks the terms of the Nuclear Agreement we will act. Iran carried out a Ballistic Missile test for the second day in a row. This time, they launched two missiles. Global news 24 hours a day powered by a 20 firm to journalists in more than 150 news bureaus around the world. 2400 journalists. Matt futures up across the board. 5 gains on s p futures, dow futures adding 90 points right now after losses yesterday. Take a look over in asia. Losses in asia overnight. Pretty much across the board. Japan, hong kong and china. Australia doing a little bit better because some of the commodities that have been in a slump the last couple of days are bouncing back. Over in europe, commodities helping to lift the indexes. 1. 5 . X up take a look at the stocks that are up. Some stocks up for individual company news. A. B. In bev closer to making that purchase of Snb Miller Sab miller. Hsbc and a lot of the banks are helping to lift indexes even though moodys and says hsbc will leave three banks having to sell 77 billion in debt to absorb losses. Not good news for hsbc specifically, but the bank sector we see rising. Lets take a look at what oil is doing this morning. Oil bouncing back here come a gain of 1. 75 . Back about 37 a barrel. We were up at 38 yesterday. Before that reversal, oil had been doing pretty well yesterday. We will see if it holds today. Lets take a look across assets come a check of gold where the fear trait has been going on, turning down this morning. We will talk more about gold on the program today. The 10 year yield climbing of it as investors selloff and get into stocks a bit. 112. En coming down to david today marks the seventh anniversary of the bull market. The least likable marketable time. The Downside Risk in the s p is much greater than the upside risk. Does this matter to you as you look at specific investments . Wilbur not really so much. Im not as industryspecific and company specific. S are notll macro determinative. Wilbur that is the difference about this bull market. Loved. T euphoria is not there. Wilbur there are a lot of things for people to be worried about. You go around the world, there is no big engine driving the economy at 800 miles an hour. Its not there. I was in china two weeks ago and things really are slow there. There is no question about that. They export a lot of their problems because so many of the other emerging companies export to china. It really spreads around the world in a pretty rapid way. The u. S. Will not grow any real rapid rate i and europe is not. Where is the machine to drive growth . We will be ambling along. One monthly statistic will be good, one will be bad. Let me ask you about the technical is here. We see the s p rising in the face of outflows. That has been a pattern with bull markets. Everyone wants to get in and then you start to climb this wall of worry and eventually, the market capitulates to the outflows. What do you make of these massive outflows weve seen since the beginning of 2013 . Wilbur markets in general have three phases. The innovators come imitators and swarming incumbents. You can check out this chart on the bloomberg. Btv 515. Jonathan that chart speaks to something, buybacks and the status that buybacks have been bigger than that inflows. The buybacks is what has driven this bull market, which makes sense. The retail money is not there. It buybacks are what are in their pending this, how long can that last . Wilbur whats causing the buybacks . Tremendous liquidity in Corporate America, low Interest Rates. And shareholder activists. The shareholder activists are playing the role in every boardroom whether they are knocking on the door or not. Conscious much more they are not sitting on excess cash trying to do something to help shareholders. They divide their opinion between increased dividends and increased buybacks. David i wonder whether the lack of enthusiasm in the market may help the market. Instead of irrational exuberance , things like stock buybacks, there is a rational decision. Wilbur there is truth to that. In china, before the big collapse in shanghai, 80 of the new brokerage accounts were opened by people with less than it has will degree. A high school degree. That does not represent sophisticated buying. Wilbur distressed assets, thats where youve made a lot of money in the past. Theres a lot of distressed assets around. Bottom, do you see signs of the bottom an in the oil market . Wilbur when it was around 30 a barrel. Given the amount of speculation, it could go anywhere. In terms of where is the real level, i do not see it going much below the 30. That is a pretty painful level for a lot of folks and especially for a lot of sovereign debt. We think as the iranian oil gradually gets absorbed later on this year and u. S. Shale production finally goes down some, we will next have to deal with the excess inventories. 2017 beforeell into you see any kind of sustained uplift in oil. I dont think it goes to 10 or 15 on a sustained basis. David take us into that uplift. What are we talking about . 100, 70 . Wilbur maybe 50, 60, after the inventories have gone down. You get over 60, theres a lot more that can come on stream. More shale comes on stream very quickly. To 50if it gets back and 60, do the shale producers come back into the marketplace . Wilbur everybody in the oil patch is an internal optimist. If they see 50 or 60, they will say it is going back to 100. Matt one of my favorite go which showss you the distressed bonds. Ive charted the number of distressed issuers traded come the total number, including oil. We have not been this high where we are right now since the beginning of 2009, since the beginning of this bull market. , with your somewhat optimistic view on oil, it is time to go in and buy some of this junk . Wilbur we have. Weve been buying the bonds of the distressed exploration and production companies. Many of them are trading on levels where it they just make two years worth of interest payments, you have all your money back out. They are not all going to go bust. The next thing that will be a problem, there was a ruling in Bankruptcy Court yesterday to the effect that a bankrupt Energy Company can aggregate its pipeline contracts. To the Oil Important producers because many of them have contracts with a guarantee of certain amount of production and thats the problem. That will become a problem for the limited partnerships because many of them were getting their dividends from these guaranteed payments. David when you come into these distressed debt situations come is part of your thinking that if they do go bankrupt, you will become an equity owner . Wilbur sure. Weve always liked to be in the fulcrum security. The seniormost security that that is generally who ends up with the equity. Jonathan wilbur ross is sticking with us for the next 60 minutes. Up, how the biggest clothing retailer in the world is doing. Futures vonnie this is the Bloomberg Business . Business flash. Doescontinentalexchange make an offer, that may set off a bidding war. Last month, the London Exchange announced a was in talks to combine with deutsche new york prosecutors try new tactic in their investigation of volkswagen and emissions testing. Vw has admitted it cheated on tests. A Record Number of americans will take advantage of Lower Airline fares to travel this spring. 140 millionys people will fly during march and april. Airfares fell more than 4 last year. Thank you very much. Inditex come the Worlds Largest clothing retailer reporting fastest Profit Growth in 14 years. Shares are trading higher. Allen to go to charles give us a deeper breakdown of the numbers. Inditex is managing to do things that other retailers cant. Why is that . Charles it is difficult to put your finger on it, but you are quite right, the samestore sales increased 9. 5 in the last half. Facthave alluded to this that online retail, which they have really integrated into the stores, has taken off, and that has driven their sales growth. We have a sense of how much revenue comes from online at this point . Charles that is something they are not disclosing. It is probably only single digits, but it seems to be growing very fast. David their same sales growth is up robustly and yet, they are deciding not to open stores as fast as they were. The samestore sales growth does include the online sales. They cut back on the rate of opening. Many retailers, 68 is quite good. They are beginning to think that they can get more sales from their existing stores by integrating these online jonathan when things go south, you blame the weather. I wonder if you could lift the lid on the live just ask of inditex and tell me the logistics there and how they can respond to weather and supply the stores more efficiently. For such a global retailer, they have almost everything going through. Now free or for centralized warehouses in spain. Four centralized warehouses in spain. Youve got almost all the stock being held in one place. They have the ability, they are not having to shop lid around as much. Shuffle it around as much. David we look at retailers as an indicator of what the Consumer Sentiment is. Is there anything we can learn about these numbers more broadly about consumers in europe . Zara remains quite small in the u. K. Indicatoret another that the spanish economy is picking up quite well. Inditex was up 8 in spain. Given that it is the most mature country, is a good number. Generally in europe, you can say they have done a bit better than perhaps people expected. Their numbers are atypical. Its difficult to say this is a leading indicator. Jonathan is there an affect story in these numbers fx story in these numbers . Charles it is not a huge amount. There are a couple of Different Things that happened. For the year as a whole, the fact that the euro is weak meant a boost tobit aboof sales. Their gross margin is being hurt a bit. For effectively the same reasons, particularly as the euro strengthened at the end of the year. Thank you for joining us today. Next come a deep dive into greek banks and concerns over possible political interventions at some of those firms. Jonathan bank stocks have taken a bit of a hammering this year. Wilbur ross has a stake in one of the greek banks. Where is your position in that bank right now . Tell me the story, your outlook for the rest of the year. Do you expect things to get better . Wilbur it all depends on tsipras did they have to make Pension Reforms and agricultural reforms. He had been promising to introduce those before february and get them through march. As you get further out into the year, the sovereign Debt Maturity is coming up and you will need the last of the bailout funds to get through their. Get through there. As the controls are gradually lifted, the greek banks will be fine. Euro bank is a wellmanaged institution, well over capitalized because of the very stringent measures that the ecb brought to bear on the loan quality. All the ingredients are there. The have a good that interest margin, good interest earnings before provisions. Once they get the extra provisioning out of the way, the numbers should be good. Jonathan you dont think management needs to change in euro bank . Wilbur absolutely not. There was a change when the investors came in. We did bring in a new ceo. Weve already gone through changes that perhaps some of the other banks have ahead of them. You are confident that alexis of chris will move before the with the required reforms . Wilbur the country will move forward. Will Alexis Tsipras be able to bble together the votes to do it under his regime or will the regime fall . They have to get on with it. You have to get the reforms through. You do not hear talk anymore about exit. Jonathan euro bank as a stock down some 33 . I wonder what the rationale is for this investment Going Forward for the rest of 2016. Given the beating interest taken so far this year already, would you be looking at increasing that stake as the months progressed . Wilbur our inclination is to announce trades after we do them. Jonathan iv been increasing your stakes so far this year . Doesr once Alexis Tsipras what he is supposed to do or his successor does what is needed, you will have a much different picture for the greek banks. Is it a bargain right now . Wilbur i think it is. The odds are that the country will do what is needed, whether it is through Alexis Tsipras or not. Wilbur the bank of cyprus a very different story. A turnaround has happened. John was set to step down. A lot of us work hard on him, learning to speak gaelic. Thrilled that he stayed. He had begun a very good renovation of the bank. Now, with continuity of management, it is easier to bring the rest of what is needed through. Jonathan thank you for joining dominates theump republican field while Bernie Sanders jumped ahead with an unexpected win in michigan. Up 11 . Res dow futures up 91 points. 23. 5. Up by moves yesterday. A reverse for the long end of the curve this morning. At 112. 49. A weaker euro this morning. Find fantasy shows. When it comes to the things you love, you want more. Love romance . Get lost in every embrace. Into sports . Follow every pitch, every play and every win. Change the way you experience tv with x1 from xfinity. Hey hows it going, hotcakes . Hotcakes. This place has hotcakes. So why arent they selling like hotcakes . With comcast Business Internet and wifi pro, they could be. Just add a customized message to your wifi pro splash page and youll reach your customers where their eyes are already on their devices. Order up. Its more than just wifi, it can help grow your business. You dont see that every day. Introducing wifi pro, wifi that helps grow your business. Comcast business. Built for business. David this is bloomberg. , the vieww york city from brooklyn, the home of hipsters. Ive never been there. David i used to live in brooklyn. Futures up across the board in premarket trading. We are joined by wilbur ross and tom keene. Tom ive never been there. Jonathan ive never been there. David i know whos been there. Nejra cehic in london. A warning from kim jongun. He says the country now has the ability to make Nuclear Warheads small in a to be put on Ballistic Missiles. That would be a major step for north Koreas Nuclear ambition. The country has conducted for Nuclear Tests since 2006. U. S. Airstrikes may have killed a Top Commander of islamic state. The leader was among those targeted in a raid on northeastern syria five days ago. Fighters the u. S. Designated as global terrorists. The man who produced the beatles has died. George martin produced albums such as sergeant Peppers Lonely Hearts Club and abbey road. He was 90. David tom, it could not be more timely, we had Samantha Pollard here yesterday talking about the subject. Always a smart writing on law and this is on the crisis of the moment. In europe, they are becoming americans. People first and figuring out their Refugee Status later. The change marks and americanization of european thinking, a tender morality giving way to a realist legalism. The crucible of this is as you cross the channel to your united kingdom. What is the dynamic you see now in london . Jonathan using the political fragmentation and people playing on this and the frustration and the anger over whats happening in the countries and people play on it. You see whats happening in this country with the rise of donald trump. The same thing is happening in europe. Tom is this immigration or migrants and refugees . Jonathan that is an important distinction. A refugee crisis is a crisis. The people coming from war zones. The other aspect is the economic migrants who come and go. It is finding that distinction. Areare refugees and who economic migrants . You cannot work out things later and do something about it because it is too late. David weve seen this with cuba with people fleeing cuba. Tenderest thing to encourage people to go on boats when you see children drowning, it may be a reminder to discourage them. You can come in another way. Tom it is a Huge International issue. Sector kissinger among others has tried to measure the scope and scale of it. It screams for an international response. Wilbur i dont think there is an International Entity capable of instituting a response. It is one of the flaws in international governance. There is no central body that can deal with the crisis. David which policy is the right policy . Did andhat germany sai say we will open the gates . No one can agree on what the right approach is. The important thing to me in this proposed deal is it is different from what the u. S. Is doing and different from what is being said. For every person that we keep in turkey, we will let one into europe legally. Time i have to believe that the backdrop here is economics. I refuse to believe the idea of this political reality not read outing upon the economics of europe. It is affecting europe. The concept of Free Movement was central to the original you. Original eu. Euros euroon moved across borders. 700,000 people a day moved across borders without interference. Now, the slowdown that will come from any kind of enforcement does not just affect refugees or people like that, it affects daily commerce. Take a couple tenths of a point off europe. Jonathan we have to talk politics or is still dominating the republican party. Donald trump is still dominating the republican party. Bernie sanders with a surprise win in michigan. Hillary clinton lost michigan but her delegate count still stands high. Murphy joins us from washington. Lets start with a surprise. Which one was the Biggest Surprise for you . Bernie was the big surprise last night. London too go back to see a 20 point swing in the final hour. Up a big win for Hillary Clinton. She does have a huge delegate lead, but she is struggling white workingclass voters. David he went to Eastern Michigan University and Michigan State those College Students are. Eeling the bern this is a big problem for her in terms of enthusiasm. Which is even wider than michigan is, that demographic lines up well for Bernie Sanders. We dont know which polls to trust. If bernie can sustain the momentum, we will see those polls could tighten. Winary clinton has shown her back is against the wall, i expect her to try to rebound tonight. Do we get to the point the establishment has to get behind donald trump . Whether they will continue to push on with this antitrust stop or whether the establishment will say we are doing more damage to ourselves than good by not coalescing around what is the voters choice. The odds for john kasich to come , those or marco rubio are dwindling rapidly. They have ohio and florida, but this looks like a twoman race. The establishment will have to make a choice. Ross, whichlbur nonestablishment candidate should they get behind . Wilbur im going down to the debate on thursday night. Ive been watching the other ones on tv. I think this may be the catalytic moment. What happens in florida will be quite determinative for marco rubio. You were a big supporter of mitt romney. He has taken a strong stance on donald trump. Wilbur it was disappointing and inappropriate. Someone whos been the former candidate of the party should not be promoting party divisiveness. I believe in the twoparty system. Won thewhen mitt primaries last time around, he expected gingrich to come with him. I dont think its appropriate to be saying there is one guy i will never vote for as the former candidate of the party. David if and when it becomes apparent that donald trump is the candidate, you will support him . Wilbur yes, of course. If the you assume college kids and the sanders people get on board the clinton bandwagon, do you assume the that case again others will john kasich and others will join the trump bandwagon . You think the sanders people will go over to donald . Wilbur i do. Social phenomenon is more similar , runninglishment against the system, running against political corruption. Those are the things they have in common. The way they articulate it could not be more different. About americat is is not treating young people the way that it should, not treating lower middle class the way they should be and they are mad about it. David can donald trump win the presidency . His friends are worried this could be goldwater. Do you believe he can win the presidency . There will be a new donald trump if he gets the nomination. The new donald trump will be a lot more president ial than the donald trump weve been seeing. I think to some degree, the characterization of himself hes been presenting has been what he felt was needed to stir up enthusiasm. Tom the secretary clinton moved to the middle as well . Movees secretary clinton to the middle as well . Wilbur thats where the heart of america is. Thats where you will win or lose the whole thing. David if it were Hillary Clinton and donald trump kumar these candidates that could draw are the other party these candidates that could draw from the other party . Wilbur we will see. Loud voices from the socalled establishment, im not clear what is the establishment. Establishment or antiestablishment . David what i want my grandfather spent 70 years in michigan. Jonathan wilbur ross, you will stay with us. Is the u. S. Headed for a slowdown . Global headwinds have investors concerned. One analyst says those investors need a reality check. David im here in the green room. Im here with to buy a left biah. He will be with us in the next hour. Looks like the talks of a takeover bid for burberry was a false alarm. It was part of a series of trades by clients rather than a single investor building up a stake in burberry. Worlds largest clothing retailer reported its fastest Profit Growth in three years. Says net income rose 15 last year boosted by online sales. American College Endowments having a rough time of it. An average loss of 3. 8 in the First Six Months of fiscal 2016. 2 during thatt time could Indiana University had the biggest loss, more than 6 . Have market induced fears of a global turndown been overblown . The president of the peterson institute, adam posen thinks so. Adam joins us now from washington. Thank you for being back with us. Im really interested about this. You say there is a growing divergence between macroeconomics and what people tell us about macroeconomics. Adam theres huge distrust after the Global Financial crisis. This fuels the idea there is bad news that either the official sector is missing or is hiding. People are frustrated. Of seeing low results and they do not like adjusting to the new reality. Both of these are understandable but misleading. Things are better than people seem to think. Theres lower signaling to noise ratio about underlying economic forces. The 210 spread. It used to tell us nothing about the underlying economic forces. Does it tell you anything anymore . Adam it tells you something, but it is less clear than it was. Spread it is the 10 year or the quality spread between treasuries and Corporate Bonds, all of those have been distorted by the fact that there is such risk aversion and regulatory pressure to pile into the short and. That is a good thing for a policy perspective. May forecasting perspective, it means the benchmarks we used to use are much less informative. Theres beenally, one big country that has driven growth throughout the world. I dont see that one big driving force right now. What do you see as the big engine that will keep growth going . Big weve shifted from one v8 in the old days of china and. Three v6s now you have a china that is now growing strongly in the service sector. Net is growing faster than people think. You have a u. S. That has a solid consumer and residential sector and auto sector. You have a western europe, you hear the numbers on zara. You have a bunch of smaller engines running at decent capacity. We do not have the pickup we used to with the v8, but we can keep going. Matt you mentioned western europe and i pulled up a chart, loans. N nonperforming in the u. S. , we see a dramatic recovery from 2009 whereas european nonperforming loans continue to rise and almost go off the charts. Is that not a problem . Adam it is an interpretation question. Positiveoing to put a spin on everything. There is clearly bad news in europe. Is because they are finally getting down to business in europe of actually recognizing the nonperforming loans, forcing writeoffs and recapitalization. There is a behind the curve in italy. The euro zone Banking Systems are finally doing what the u. S. Did in 2009. Wilbur isnt that interfering with the evolution of quantitative easing and monetary easing in general . You need banks to transmit Monetary Policy to the real economy and i dont see the european banks doing that. They are all trying to shrink their asset base because of regulatory issues and because of the npls they are beginning to recognize. I think that is why monetary easing is the less likely to be effective than people at hoped. What do you think . Adam it is fair to raise the question of transmission. We had issues ongoing in europe. In the u. S. , when we have problems with the bank, there are alternative forms of finance. That is a structural issue for europe. The crisis in the 1980s and the japanese banking crisis of the late 1990s. There is this transitional state you have to go through a getting the loss is recognized in the Banking System and tricking the Balance Sheets. Then the transfer becomes possible because it is on a real basis. They will be ok Going Forward. Jonathan you penned this report in the midst of a big correction in financial markets. In chapter nine, you talk about centralbank impotence. I wonder what is left on the table for the ecb. What do you expect tomorrow from mario draghi . Adam we tried to hit the major issues. Still ammunition left for Monetary Policy. Both in the form of negative rates and buying nonstandard assets, buying things other than government bonds. There are technical problems in ecb land right now because the rates have come down so much, theres a limit on how many german bonds they can buy. There are some issues they have to work out. You will get an additional cut to negative Interest Rates. Start buying to alternative assets. Finally, they will probably extend the duration of the qe program. It would be better if they frontloaded it. Either of those are just about the markets thinking they are doing something and less about direct impact. Jonathan thank you for joining this program. 24 hours away, the ecb rate decision. Tomorrow, 7 45 eastern. We will be carrying Mario Draghis press conference in full tomorrow. Wilbur ross and stays with us. Him. Miller will be joining that is next on bloomberg. Matt welcome back to bloomberg. Time to go off the charts. I wanted to take a look at this dis function on the bloomberg. I put in integrated oil companies. There is a wall of debt coming due in 2019. What does this mean to you . Wilbur it means in several things. Will have to be refinanced a year or so earlier because if you do not refinance it a year or so earlier, you will not get a clean opinion from the auditors, you will not be able to roll over the bank line. Every year gets pushed back in the real world a year. 2020 is problem is a 2019 problem. Becauselittle distorted so much is the big integrated oil companies, which are not going to fail. They may not like the terms, but i do not think they will fail. The real concentration of the problem is the roughly 20 of all highyield and leveraged loans in the smaller emp matt that is where you come in. Wilbur we are getting to be deeper and deeper into that world. Matt thank you very much. David thank you for being here today, wilbur ross. Find fantasy shows. When it comes to the things you love, you want more. Love romance . Get lost in every embrace. Into sports . Follow every pitch, every play and every win. Change the way you experience tv with x1 from xfinity. Hey hows it going, hotcakes . Hotcakes. This place has hotcakes. So why arent they selling like hotcakes . With comcast Business Internet and wifi pro, they could be. Just add a customized message to your wifi pro splash page and youll reach your customers where their eyes are already on their devices. Order up. Its more than just wifi, it can help grow your business. You dont see that every day. Introducing wifi pro, wifi that helps grow your business. Comcast business. Built for business. Today is marking the seventh anniversary of the u. S. For market is the party over . The s p has a 20 downside, making for a lousy risk reward tradeoff. Opportunities in energyrelated investments . We will take a closer look. David welcome to the second hour of bloomberg. Stephanie ruhle is out today. Wilbur nobody is getting out the cake and balloons. Matt i feel like weve come a long way. I want to bring in Tobias Levkovich, managing director and chief u. S. Equity strategist for citigroup and chief Global Equity strategist for jefferies. We go live to nejra cehic in london. It was a big night in u. S. President ial politics. Hillaryanders upset clinton in the michigan primary. Clinton has more than half the delegates she needs for the nomination. For the republicans, donald ,rump won in michigan it mississippi and hawaii. Ted cruz has 347 delegates. Vice President Joe Biden says if iran breaks the terms of the Nuclear Agreement we will act. Biden spoke in israel today after iran carried out a Ballistic Missile test for the second day in a row. This time, they launched two missiles. The u. S. Said they would investigate whether the tests violated u. N. Resolutions. Tanks,. Will deploy helicopters and infantry vehicles capable of destroying russian troop carriers. Global news 24 hours a day powered by our 2400 journalists in more than 150 news grows around the world. we are seeing futures rise this morning, a lot of anticipation for tomorrows ecb decision. A bit of a bounce back from yesterdays relatively steep decline. Weve been talking about this anniversary of the bull market. It goes back to march 9 of 2009. On that day, the wall street journal had a negative story on its front page saying doom and gloom in the markets. That happened to be the bottom of the market at that point. Here we have it, the climb we have seen. If you look at more recent history, that does not look so sunny. Heres the yeartodate returns for the three major averages. We have not seen Much Movement whatsoever. Laggardaq has been the this year as wheat seen a breakdown in largecap technology. Financials have lagged this year as well. Looking ahead to the ecb, heres a look at europe for the year to date. The dax there is the underperformer with a decline of 8. 6 . If you are talking about anything viewed as more risk on assets this year, you have not seen strong performance. Switching back to today, lets take a look at whats going on with oil prices. Oil higher, seeing a bounce back today. Be some levelto of optimism that the decline in production we will see in the u. S. Will eventually result in lower stock. You will get todays inventory numbers at 10 30. Looking at gold prices today, not much action on that front yesterday, coming down again today as we are seeing buying and equities once again. Turning to the credit markets, we have the euro declining ahead of the ecb. The pound up very little bit and the dollar falling versus against the japanese yen. Matt breaking news on valeant. The company adding three new directors to its board of directors. Stephen will join the board as well as former unc president thomas roth and fred eshelman. It has now been confirmed. Anders will leave the board. One could take valeant step closer to selling bausch lomb. David they have larger governance issues. A number of stumbles here. Matt i would say valeant does seem to have governance issues. David sean darby and Tobias Levkovich are both equity strategists. One u. S. And one global. Weve been talking with a sevenyear bull market. I want you to predict the next seven years. Looking at the next one year, do you see trouble . Im quite optimistic. The markets have overplayed the deflation and the recession team as well. There was a midcycle slowdown in the u. S. More inventory led them credit cycle lead. I expect the markets to reassert themselves. We talked about this 60 minutes ago and the amount of buybacks and how thats what is really driving what is underpinned this bull market. Can this continue . Weve had 2 trillion of buybacks. It is not a recent development. It has been going on for a decade. Corporates are saying our companies are undervalued. It tends to be highly concentrated. , one company accounted for 45 billion of buybacks. Another 45 billion among for technology companies. 1 of the s p 500 accounted for 17 of the buybacks. Wreckage of share count is less than 1 of shares outstanding. Shrinkage of share count. It is inventory correction. Industrialsd was 41 of all industries reporting Industrial Production are showing down production. Up production. I agree with sean, but the data is not supportive of the argument, it is not even a question of prediction. Matt i wonder what you think about the outflows we were showing this chart earlier. G btb 515, take a look at this. You have the s p making a steady climb up. Line trailingay 12 month lows altered the downside. Thats all to the downside. Is this the typical cycle in the bull market where no one believes it . The Rodney Dangerfield of markets. It gets no respect. Two pers went through iods when they lost 50 of their money. When the fear level starts to , they just run for the hills. Theyve been missing out in a lot of opportunity. Sean it is all about fixed income. , it is the running yield in favor of stocks at the moment. , theis the big switch switch out of fixed income into equities over the next 12 months. The backdrop for the u. S. Is quite good. David you think equities overall or a bargain right now . Sean i do. Look at the Free Cash Flow basis, it is yielding 6. 5 , way higher than the 10 year treasury at 1. 8 . Real rates are already going negative. Inflation is picking up in the u. S. You could make that argument in europe on rate differentials. When you look at equity markets in europe right now, the story is that weve had a year of qe and the dax is down and the big winner of qe is the german bond market. You expect that to change . Sean ive had that trade for the last two years. What weve found is that germany is seeing quite a significant rise in wages. Wages growing at 4 . The germans are spending the money and shops. The have a Residential Property boom. The Property Market seems to have ignored that. We will start to see some signs of inflation coming back. Much of aonder how factor fear is. Yen, the rise the of the yen, a lot of that is a rush to save assets. The markets seem to be more nervous about things. What are they so nervous about . There was a fear that maybe we will get some spillover effects from the yen. Whether the credit cycle will spill over from the end. That doesnt appear to be the case. Monetary policy in china has loosened. Even china has recognized the fact that there is growth in the economy. Yesterday during our battle of the charts come i pulled up this pimco chart where they said they like highyield debt versus you mentioned the Free Cash Flows of the s p 500 come about 6. 5 , you are getting a percent on highyield that. Debt. On highyield what do you think about getting back into Corporate Bonds and highyield bonds . Sean ironically, what happens is theres a high correlation to the performance of global equities. Its all about reaching for yields. They tend to do quite well at the same time. The peggy off the moves in the credit spreads. Off the moves in the credit spreads. David that is the pimco view. There are other views. In seems to be based on global challenges like china. How concerned should we be about the continued growth in china . They are borrowing too much. Sean the authorities are doing a lot of reforms, loosening policy. Theyve had to do the same thing. They are committed to removing 6 million workers, that will need to be underwritten by quite a large debt burden. The authorities have recognized the old model is redundant. Looks like quite a big number at the moment. Its all about supplyside reforms. The previous month was one of the biggest months for china on record. Are they not going to play the credit channel again to boost growth . Part of the domestic credit growth was because theyve been reducing the foreign currency loans in the system. If you see the reserves dropping, theres been an the domestic banks have had to go back and lend rnb. A substantial amount of the outflows was just that, paying down dollardenominated debt. The trade numbers showed of imports into hong kong from china. Saying thatple are was false invoices, people pushing money out of the country by the trade channel. We cannot get a read on what is behind the outflows, can we . Sean we cant. That has been deteriorating, theres little doubt about it. Just on the traded a, you should be aware that even though the value of imports was down, the volumes of things like commodities was up. You have to be careful that we do not careful how you look at these numbers. Andthan Tobias Levkovich sean darby stay with us. 20 downside and 15 minutes away from the open in new york city. Futures positive. Matt jason kelly is with us now for say what . Quotes that can move markets. Did i do that right . You did not grow up with different strokes. Talk to us undlach. Ff goo jason lets go straight to the quote and then we will talk about what he said. The Federal Reserve will avoid a new round of quantitative easing and negative Interest Rates in the u. S. Would backfire like an old model t. This was amid a presentation when he was very bearish on the s p in general. Says this is a bear market recovery, not a lot of optimism from jeff these days. Into yours wading area, Tobias Levkovich. Focusing suspect hes on Earnings Growth and industrial activity. We talked about industrial activity before. Most of the data is supportive. , theyvernings front been squeaking out modest gains besides energy. Highyield market is extremely energy focused in terms of where the problems are. , its overstating the point benefits his portfolio. Guys talk, these clearly, they are talking their own book. Whether it is a broad bet on the market or when they come out and talk about individual stocks how markets have reacted to information as opposed to trying to put money going into a place and opposing a view. Ive been married 30 years per i know no one listens to me. Jonathan the idea that theres only 2 upside and 20 downside, what do you think of that view . Sean it would require real bond yields to move up sharply. That was the case mid 2015 going in. There was a pickup in real bond yields. Inflation rate is picking up now, things do not favor fixed income as they did. The earnings recession in the u. S. Occurred in 2015 and that was also not just the oil prices, but the strength of the dollar. It did make a sizable impact on industrials and the imported inflation came in. It is a story that has already passed for the equity market. One data point on that part in the Fourth Quarter, the trade weighted dollar was up 14 yearoveryear. Companies and saying they lost in the bible midyear, it is 2 yearoveryear trend. The midyear. Matt this is about the activism fight breaking out. Chairman says you cannot be effective as one guy unless you come in as chairman. Not billing in just as a board member. I dont need a job. This is an interesting take on a lot of the activism that weve been seeing that we talk about. David this gives this challenge to the board seat a lot of credibility. Gordon has a reputation in that industry. Jason as activism goes, its one thing to put one of your guys on the board. Nt earlier,out valea but to bring in somebody of this stature in an industry that is ,losed and has legendary titans we could see very interesting things out of united. Matt is there a trump quote today . No . Jason not today. Company thats a has a lot of troubles with its merger. Tobias i will not talk about the specifics of the company, but the activism aspect is powerful in terms of hedge fund returns. 2015, very different story. That, sohe reason for much capital started chasing that activist opportunity. You get into bigger and Bigger Companies trying to force change, you start finding the opposition in the Small Companies are easier to force those adjustments. In general come activism has not been as successful in the past year. David jason kelly, thank you for joining us. Tobias levkovich and sean darby are staying with us. We take a look at oil, next on bloomberg. Matt oil is rising for a third day in four after suffering its biggest drop scott bauer joins me from the cme in chicago. Thank you for joining us. What is going on with oil because it looks pretty bullish lately. I think i saw it hit 30 briefly yesterday. Scott it did. Oldman came out with this big report yesterday morning. That really hit the market yesterday. Oil was down 4 . Based on goldmans call, it is hard to discount what they said. In the near term here, in the short run, the pressure is really to the upside. We will see the Oil Inventory number later this week. The analysts have come out and said we are looking for a 3. 6 million barrel build the pressure is to the upside. Anything short of that and we will see oil trading for the again 40 again. I think we will see 40 before we see 35 again. Matt two cap production at the most they can produce. What have we seen that is bullish for the price as far as supply is concerned . Scott in terms of the supply, we will see what happens with the build here. What i wanted to point out, when dipped down into the mid20s, it really looked like a capitulation. We have not seen that yet to the upside where all the shorts have been covering. Yesterday could happen due to Goldman Sachs, could have been profit taking from the big rise, but we have not seen that big volume number on the upside. That also is why we will see 40 again. In terms of supply here, i dont think we will see any drastic cuts out of opec. To the upside here is where the surprises going to be. Matt scott bauer from trading advantage at the cme. Stay with us on bloomberg. Find fantasy shows. When it comes to the things you love, you want more. Love romance . Get lost in every embrace. Into sports . Follow every pitch, every play and every win. Change the way you experience tv with x1 from xfinity. Hey hows it going, hotcakes . Hotcakes. This place has hotcakes. So why arent they selling like hotcakes . With comcast Business Internet and wifi pro, they could be. Just add a customized message to your wifi pro splash page and youll reach your customers where their eyes are already on their devices. Order up. Its more than just wifi, it can help grow your business. You dont see that every day. Introducing wifi pro, wifi that helps grow your business. Comcast business. Built for business. N bloomberg this the portfolioy manager and chief strategist at jefferies. Lets get you some first word news with nejra cehic. Nejra what a 13,000 refugees are piled that greeces border with macedonia. The macedonians and other governments are taking extra steps to halt the flood of refugees crossing borders. Greece says it can shelter roughly double the number currently stranded there. In france, Union Railroad workers went on strike to sotest france one hollande plan. The strike lasts through tomorrow, slowing down rail Service Throughout france. The u. S. Government will test alternative payment plans to try to lower costs for an expensive medicare drug program. It has to do with doctors administering highpriced drugs for cancer and other conditions. Medicare says the Current System financially penalizes doctors who choose lowcost drugs to treat patients. Global news 24 hours a day, powered by 2400 journalists in more than 150 news bureaus around the world, i and nejra cehic. Julie hyman now has a Premarket Movement to keep an eye on. Julie we are starting with chipotle on concerns over food safety at the companys restaurants. It temporarily shut one of its locations outside boston after employees got sick. It is going to do a complete cleaning of the store. It is not clear what the illnesses, but chipotle is trying to take precautions to avoid another outbreak of sickness. The shares are down more than 3 this morning. They have fallen in the neighborhood of 25 since october, when reports of illnesses began to surface. An update on valeant, which we have been talking about, the company adding three independent directors. The company confirmed there are 14 total. One of the directors is stephen freight, the vicechairman of Pershing Square, the thirdlargest shareholder or a shares are up 3 . Late yesterday, bill ackman of Pershing Square said there is the possibility the Company Might sell a stake in its bausch lomb unit, amidst all the turmoil and stock drop that has been going on in the company. The stock increased today on the back of that news. Matt lets get to the morning meeting today. The managing director and chief equity strategist for citigroup. Tobias, lets talk about some of the other wall street banks that seem to be getting on board with the call you have had, that largecap names can continue their growth in 2016, beating smallcap stocks. Sectoryou think smaller stocks will do better . Tobias one is the value differentials. 170 standard deviations over. Outperform 45 of the time regularly, so you have higher probabilities on your side. I like when the odds favor my investing choices. I am better at love and gambling. The other side of it my mother told me that years ago, that you are either lucky in love or gambling, so choose love. Differenty backed Economic Series to determine which are the most predictive with a 12 month on lag performance, continuing to support the large over small trade. Looking at how markets have treated information for 20, 25 years, and it is likely they will continue to treat that information similarly based on that history. Matt within that call, you look at the strength of the dollar. You do not think that can continue. Tobias it depends on who you ask at citi. You talk to our asset allocators, it will be down 4 to 5 . Matt you do not think there will be a huge diversion in trade . Tobias there should not be. The u. S. Does well. They will pull the rest of the world with them. I always tell people to watch the spreads on things like the 10year treasury. If the 10year treasury starts move up, you will see the yield move up because it is a world economy. The spread, about not about the level of the 10year treasury yield, which is where people get it wrong. David talk about the sectors. Letse some people saying be conservative and go into Consumer Discretionary and into things that are safer. You are taking a different approach. Tobias we do a lot of bottomsup work, and we get our sectors from the Industry Group. Media, butweight underweight consumer. There are different factors driving them. From evaluation criteria and Consumer Sentiment. Some of the leading indicators i talked about before. We like energies we like energy, where valuation is compelling. Matt you like energy. We heard wilbur ross saying this earlier as well. On the high yield side of things, he is getting into it. Sector, the energy large caps. Tobias we are not trying to mess around in the junk pile and hope we can figure that out. That is not my forte. Matt you think they have taken their lumps here . Tobias i would not stay in the higherquality areas. David lets stay in energy. Crude is up after the biggest drop in more than three years. For you are from cushing asset management. Have we seen the bottom on oil . We think there are three major trends that have to get in place for the bottom to be put into you need Global Supply to rollover. We have seen the u. S. Drop 600,000 barrels, so that is a nice start if you are talking 1. 5 million or 2 million barrels. We need demand to stay consistent. We have seen the iaea and opec come out with numbers, 1. 2 million barrels, 1. 20 5 million barrels. We have seen the inventory bloat over the last 15, 18 months begin to blow off the we have driving season coming up, so those are the types of things, as those trends get in place, investors will be confident that the bottom is in in energy. Jon how long does that take . Libby the technical bottom that we had in february, we could get there. If we have a hick up that the main number will go down, that could push us further. David wilbur ross tended to agree with you. We asked him, how far it will go up. Take a look at what he had to say. Wilbur i think 50, 60. You get much over 60, there is a lot more that can come on stream, a lot of shale that comes on stream very quickly. David to be clear, he said he expects inventories to be drawn down in the second half of 2017. Does that sound reasonable to you . Libby the inventory burn, it could take that long because we are bloated so much. That does not mean that prices could not get higher before then. 50 growth. For the midstream business, you do not see you do not need to see 50 crude or 60 crude. The midstream business can function at 40 crude. I think what has happened in the oil market and a lot of the Commodity Markets is that is what has happened over the last quarter. It comes back to major demand for oil, where it is coming from, we is china and india. I think we are at the same turning point. To the back to tobias point about the dollar, the real trade weighted dollar, 35 years, it never appreciates more than 17. 5 . We are rolling over on that one as well, which is generally good for oil. Libby that is a great point. Last week we saw in inventory build again, that we saw positive reaction. For the first time we are seeing positive reaction to negative news. Jon how much is china looking at 35, 40 . Does that roll over as well when the price goes back up . Sean not really. We are seeing auto sales in china and india remaining resilient. That has been an ongoing theme. I would also point out that it is not necessary that the whole of Industrial Production in china has rolled over. There are a lot of slugs in china, like housing, doing quite well. It is not the energy side, just other parts are holding up quite well. It is not over year, that they are falling, they are only growing 7 or 8 . To rally whentend bad news gets less bad. That is what is happening with commodities. We have 18 months of a nutritional of an attrition al down move. David i want to come back to your midstream point. As the cash flows remain up despite some of the difficulties that the upstream are having libby the majority of businesses midstream space are continuing to enjoy cash flows. Equities has been hit just as hard at some of the companies that are experiencing deterioration in cash flows, as they sure as prices hit 70 . Tobias i heard some discussion going on libby the trough of this cycle has lasted so long that you have begun to have implication for some midstream. Just the way you see the weaker producer shaken out of the upstream space, some of the Midstream Companies that are doling with those producers have issues with potential contract renegotiations or contract rejections. That is not the bulk of the space. That is what is being lost on the market. Matt when do we see real m a action kick in . ,r can they weather the storm can the majority of the companies weather the storm without having to sell . Libby we are going to see some more consolidation definitely on the upstream side, and we will see some on the midstream side. There are plenty of Midstream Companies that can continue to operate as is. There are a few on the fringe that probably need to be scooped up in order to take advantage of the growth opportunity. We looked yesterday and saw this. Year to date, 9. 7 billion has been raised by the equity issuance in the energy sector. 40 percent of all equity issuance in the u. S. Came from energy. The ability to sustain companies and get them through reminded me of what we saw in 2009. Things got repriced to survive the downturn as opposed to dying out. Sean that is not good news if you are looking for the markets to get some kind of equilibrium. You want a lot more bad news for this production to come out. Says we have not reached that point where things got really bad and production came off because people could not run their business anymore. Libby you have to separate the weaker producers from the better ones. The better ones are able to raise capital right now. We had 40 bankruptcies last year and we will probably have triple that this year. The weak guys are continuing to be screened out. Tobias if you live in the highyield market, we saw energy highyield financing running up 15 , 16 . That is pretty ugly. That is very different from where it was in energy, which was sitting below 8 . I am saying so long as these guys are running dividends and issuing debt to pay the am saying things are not as ugly as they could get. Libby in the upstream business, it is different than midstream. Midstream companies are paying their distributions through sustainable cash flow. It does not matter whether they have access to the Capital Markets for their cash flows. Capital markets is how they are going to grow. There are so many Growth Opportunities today because of the shale revolution. These guys do not want to give up the Growth Opportunities. That is why they are having issues. How do i allocate my capital . Jon great to have you with us. Thank you for joining us on bloomberg. Will investing billions payoff . That is next. Matt i am in the green room with dan chung. Neon, next in the battle of the charts. Nejra this is your Bloomberg Business flash. Drugmaker Valeant Pharmaceuticals has increased the size of its board and added three independent directors and one of them is the vicechairman of Pershing Square capital. Bill ackman owns valued shares and has defended the company while it is being investigated over a mailorder pharmacy it used. Profit rose 5 last year. The world market slater they weres largest maker of luxury cars bmw is forecasting another year of record sales. A Record Number of americans will take an vantage of Lower Airline fares to travel this spring, according to the Industry Group airlines for america. The group says 114 Million People will fly during march and april, almost 3 higher from a year ago. That is your Bloomberg Business flash. Matt . Matt the recent trend among Media Companies has been spend, spend, spend. The idea of pouring more money into new original content is snowballing across the industry. Cory johnson took a look at amazons prime service to see how much the company has invested in its video business and what it means for the competition. Cory can streaming digital video for sales of physical goods . That is a billiondollar bet for amazon prime. Amazon prime has some 60 million customers paying 99 a year to get second day shipping. Prime customers can watch online movies. Get back here now cory tv shows, and original amazon content. Justice. D, liberty and cory amazon is spending vast fortunes on content, 1. 3 billion in 2014, 1. 9 billion last year, and 2. 6 billion estimated this year. That is big spending leading to a big user base. Amazon prime has an increase by more than a third of users last year. It comes to tv shows, netflix has twice 600 tv shows. Has 2600 tv19 shows. Amazon has 1900. There are 18,000 movies for amazon. Much of what it is offering is the digital rental of movies. Those revenues are in addition to amazons subscription prices. It is important to note that amazon is offering is different from competitors. Netflix and amazon have subduction revenue, and hulu and amazon also have broadcast tv. Netflix and amazon have subscription revenue, and hulu and amazon also have broadcast tv. The rivals from amazon, download is a unique offering, trying to keep up with some strong competitors. All three are getting recognition from hollywood. Hulu got its first golden globe nomination this year. Amazon took home five. Quality matters, because a sticky show leads to a sticky customer. A sticky amazon prime customer customers paye more than regular customers. David thanks to cory johnson for that piece. He will have a full interview with what price this week on bloomberg west. Next, it is me versus matt miller in the battle of the charts. Get ready, matt. Matt i am ready. Jon it is that time of the morning, the battle of the charts. Julie hyman . David westin is taking on matt miller this morning. David i volunteered to take on matt. I have a very single a very simple goal. I want to make a clear and timely. What is tomorrow . Lets take a look at what quantitative easing has done in europe. Has it made a difference . Hasyone believes admitted difference . White line is the ecb Balance Sheet. See how it has gone up so dramatically . Blue line, this is what is happening for the stoxx 600. This is going from april last year, a full year of quantitative easing. The green line is growth in the economy. There is no reason to believe further quantitative easing will do anything for stocks are growth. You can get that on your terminal. That is my entry, matt miller. Not bad for a beginner. Matt i am impressed, definitely timely. I am inclined to like your chart better than mine. I got a little help from Jeff Gundlach here and obviously hillary as well. Netve a chart of s p 500 Profit Margins. In no period have we seen that Profit Margins on the s p 500 fall more than 60 basis points without signaling or coinciding with a recession. Only 1985, and i cannot go back that far. I can go back to 1990. 1979, 1990, in 2001, and in 2007, every time s p 500 net Profit Margins fell more than 60 basis points, we had a recession. What do we see here . Net Profit Margins were at almost 10 and have come down almost 8 . We have seen 166 basis point drop in s p 500 net Profit Margins. Does that mean Tobias Levkovichs optimism notwithstanding, that we are headed for a recession . Jeff gundlach says this paints a negative picture. David talk about the slope of the curve, which is the difference here. Look how precipitous this is. Look how graduate look how gradual this is. Matt it does not change the fact that every time we have seen a 60 basis point drop, we have had a recession, with the exception of 1985, the year jon was born. 513 is where you get my daily stolen from Jeff Gundlach chart. Jon the big question at the turn of 2016 is where the markets have detached from economic fundamentals. Your charts say maybe not, that there is negative news, particularly and earnings recession. The big question for the ecb is qe actually working. The reason Jeff Gundlach did your homework, david westin gets the vote. David thank you, john. Julie i might have to agree here. I like matts chart very much, but i like the timeliness of davids chart as well. The problem is there has not been enough quantitative easing. Buy thatknow that i argument, but i am going to give it to david. Jon i am going to give it to david as well. David i am retiring. Next, talking about the seventh anniversary of the bull market. Will it last . Matt it is the seventh anniversary of the post crisis bull market in stock. Investors are pulling cash from stock at the fastest rate ever. Technology is one of the biggest winners in the bull market. Is it pours for more gains after a rough start to the year . Investors are piling into argentina as the country marks its longawaited return to the International Bond market. With a cio about opportunities in that country. Matt we are about 30 minutes away from the opening bell in new york city. This is bloomberg. Miller, along with david westin. Stephanie ruhle is out today. Jon has just left us. The plague is killing us all. David and i are still standing, and with us for the hour is dan. Hung david dan and i shared an office, not at the same time. The clerk for Justice Kennedy after i clerked for powell. It couple of geniuses here on the set. That is not intimidating at all. I am tossing it to julie hyman. She has a look at the markets. Julie we have futures indicating a higher open on this market anniversary. A snap back from yesterdays decline, also rising along with oil prices and along with optimism about the ecb tomorrow. We are going all the way back to march 9 of 2009, at the beginning of it, even though we had some hick ups, were seeing nearly a 200 gain on the bull market run. It is a very long bull market compared to others. The though financials are second best performers during this stretch of time we are looking at, if you take it back to the financial crisis, we have still seen an underperformance of financials. We are going back to october of 2007. Ise are the financials, here the s p 500. We have seen underperformance, and for that reason we have had investors come out and say they like financials in part because of that relative underperformance. I want to take a look at oil because i mentioned it is higher today. That is helping support stocks. There appears to be optimism going into the weekly inventories report, not so much on the supply side but on production. We havenot seen this seen this line in u. S. Production, helping to support oil prices. All of that said, if you take a look at the risk safety assets, and what they are doing today, as we see stocks go higher, we are seeing them mostly go lower heard we have gold turning lower, action on the yield. People are selling treasuries, and finally the dollar is very slightly higher versus the japanese yen. The flow has reversed, at least for today, to more of a riskon environment. Lets get to first word news with nejra cehic. It was a big night in u. S. President ial politics. Bernie sanders upset Hillary Clinton in the michigan primary. Polls indicated clinton had a doubledigit lead before won inn day, but clinton mississippi and has more than half the delegates she needs for the nomination. Donald trump won in michigan, mississippi, and hawaii. Ted cruz won in idaho. Has 158 delegates. Ted cruz has 359 donald trump has donald trump has 458 delegates. Ted cruz has 359. Gray says it can provide shelter for up to 70,000 migrants. The man who produced the beatles has died. George martin helped turn the beatles from a scruffy club band into musical revolutionaries pretty produce classic albums like sergeant peppers lonely peppersb sergeant Lonely Hearts Club band. George martin was 90 years old. Global news 24 hours a day, powered by 2400 journalists in more than 150 news bureaus around the world, im nejra cehic. David the number one story is the seventh anniversary we have talked about in the post crisis bull market. Now nervous investors are pulling cash from stocks at an almost record pace. Is it over . Dan we do not think it is over. Have of all, investors been pulling money from u. S. Equities continuously since this financial crisis. Second, we are in a transition, we think, in terms of Interest Rate policy in the u. S. And globally. Tomorrow we have the ecb that is predicted again to go to even further negative rates. And the u. S. Has changed direction in december, causing a lot of uncertainty and nervousness among in esters who are looking back among investors. They are making a big mistake. All volatility is normal in stock markets. There are 200 instances of 5 or more decline since 1927. The median decline is 12 . The main reason is that corporate fundamentals, economic fundamentals are even good dark think,either good, we was particularly in the u. S. Matt we have this up on julies terminal. The 12month trailing outflows have been steady since the end of 12, the end of 2012, beginning 2013. It looks like a pattern that repeated itself at the end of the last bull market. Dan the outflows are a natural reflection of investors anxiety and cautiousness. It is also natural in many cases where they are rebuilding their Balance Sheets. Ishink the conflict of that corporate fundamentals, equity valuations are attractive. David can we go back to that chart . I have a question. Why doesnt the chart just say investors are smart . They are buying when the market is low and selling when it is high. I thought that was the whole purpose. Matt they started selling at the end of 2012 and they seem to have left a hell of a lot on the table. Although it is not necessarily that they are selling. Those are overall market statistics. U. S. Equities have been net outflows of u. S. Equities really since the financial crisis. Investors largely sold at the bottom and continued selling every year. The main reason it is wrong is if you look at the returns from the market since it bottoms, u. S. Equities have been one of the top asset classes. Matt lets move on to number two. Ecb than 24 hours before president mario draghi speaks tomorrow, we will bring that to you on bloomberg. Economists are all expecting the central bank to cut rates, but Fund Managers are not so optimistic about a post decision rally. Since april, the stock 600 has fallen after the ecb meeting except for one. That comes at 7 45 a. M. Eastern tomorrow. We will have that on bloomberg go. You saw davids chart earlier, the winner of the charts today. David you are a gracious loser. Matt it has not helped to boost gdp or boost the stock 600. I would suspect it has not helped boosted inflation terribly. David the white number is the Balance Sheet of the ecb, and the green is gdp growth. . Att is that normalized what do you think about the fact that they are going to give us more tomorrow . Is it going to help anything . Dan we wrote back in the fall about the u. S. Fed changing rates. The efforts are necessary and important, but we think investors relying on the ecb and Interest Rate changes at the Central Banks to fix economic problems, to restructure and economy for growth, to get the consumers and businesses spending again is a big mistake. In other words, what we wrote in thisall was that psychology has dominated a lot of thinking. Off around macro policy changes. The ecb is moving in the right direction, but if europe is going to a dress its issues, it will have to be more structural reforms. I want to point out something underneath the covers in u. S. And in europe. Companies, consumers, businesses make decisions not based on what the central bank does or the rate, they make decisions based on opportunities, innovation, what they see in their consumers, and competitors, and also if they are borrowers in the market rate of interest. The market is in control of Interest Rates. Interestave seen with rate rising in december, Interest Rates have fallen to we will see that again tomorrow because the gap between u. S. Directional policy and ecb policy has grown. We think we will see more european investors attracted to u. S. Bonds. Low. Ll keep the u. S. Rates it is a very attractive environment. Matt do you expect jeff says there will be a turnaround who else was telling Erik Schatzker last week that the fed will have to turn around as well . Do you think the fed will continue to raise, or is it possible they will have to turn tail and run . Dan i think they may do one and done. It will be small. It will be kind of meaningless. Investors,l control Bond Investors will control Interest Rates. In that real world, Interest Rates are very low. They are very stimulative and very attractive for businesses and consumers that want to borrow. Real driver for recovery, for the equity market, is that a lot of progress has been made fundamentally, and there is opportunity in many industries. See disruptions in other industries. That number three story matters to the markets norways Sovereign Wealth Fund is not enjoying a global stock selloff. The says he does not fund returned 2. 7 last year, its worst performance since 2011. The interesting thing to me was that they were buying equities as we went into 2016, not selling. There was speculation that Sovereign Wealth Funds were driving the market down by selling securities, but at least norway was not. Dan that was fascinating. Bloomberg also showed their Asset Allocation is 61 equities. One of the reasons the bull market continues in the u. S. And globally is that Retail Investors have some of the lowest allocations to equity that they have come at about 30. The average Retail Investor in the u. S. Has is an interesting dichotomy in the market, and it is also one of the reasons the equity market cannot continue to rally. Matt not only can we not show you what not only can we show you equities, but we can show you what they hold in terms of equity. 15 of their portfolio was Consumer Discretionary stocks. 20 was financials. 20 was i. T. Only 6. 5 was energy. You can break it down. Dan that is an important point to be made. If you look at what are some of the most Dynamic Industries worldwide, where is progress and change . You look at the internet, whether it is consumer commerce or Cloud Computing you look at Health Care New biotech, new genetic scanning and diagnostics so maybey are strong, they made some good decisions for the future. Sovereign wealth funds are very well resourced and are probably doing Great Research into what they think are probably the most attractive Growth Opportunities Going Forward. David those are the stories that matter. Dan chung will be sticking with us, i am happy to say. Much more ahead on bloomberg. 15 minutes, more or less, before the opening of trading. Nejra you are watching bloomberg. I am they rich a hitch with the Bloomberg Business flash. Chinas leading oil producer is saying no to its worker layoff. The Company Chairman tells bloomberg he is working on Development Plans for a longterm, low price environment. U. S. Stock producers are trying the wall street journal says the government is using a farreaching law against bank fraud and looking at whether vw broke tax laws. Testsitted to cheating on determining whether diesel engines pollute too much. The s p 500 lost less than 2 . That is the Bloomberg Business flash goodenow to julie hyman with a look at the stocks to watch as we approach the open. Julie we are watching energy shares, which fell sharply yesterday. They had been climbing and then reversed that yesterday. Now they are reversing it again. Fornitely a roller coaster some of these stocks that have been highly volatile. They are also heavily shorted. The upswing looked like a short squeeze. Take a look at bloomberg. You are looking at the short interests with the bigger lines and then the stock prices in the smaller. The first is chesapeake energy, then south bet then southwestern and then bury. Chesapeake, 44 . For southwestern, 24 . On a relative basis, these are unusually high numbers. The stocks have fallen. Up until recently we had a top in all three, and in many of the heavily shorted energy shares. That is a phenomenon that we have seen not universally, but it is a common one. A couple of other movers, yelp and groupon, both downgraded to reasons, buterent both of them having to do with competition. Yelp, analysts are skeptical about the companys turnaround. It is facing more competition. In groupon, ubs points out that rivals like google and facebook and amazon have focused more on local business and captured more and dollars and captured more ad dollars. One company shorted by investors one of them is lumbar liquidators. One analyst is resuming his short on lumbar liquidators. And Planet Fitness is being shorted by ben axler. He talked about it at the conference yesterday. He said the stock is having 50 downside, and that there is a Tax Liability for the company. Matt this is bloomberg. I am matt miller with dan chung. , jeffdays double line gundlach said the s p 500 has a 2 upside and a 20 downside. The rebound is a bear market rally. Dan, what do you make of jeffs bearish equities presentation . He is a bond guy. Think if you are looking at the conditions for a bear market in any asset class, the bond market is more primed for a bear market then u. S. Equities. We have been in a long bull market. Interest rates have been falling continuously for 15 years. At some point, the u. S. Is changing direction. The ecb is going the other way. At some point that game is over. Globallynterest rates have driven a large part of the game. The Interest Rate on these bonds investors are making a losing bet if they think they can buy a german 10year or a u. S. 10year yielding less than 2 . The german one yielding basically less than nothing. In 10 years they will be ok. The opportunity in equities might be reversed. We have on the s p investmentgrade bond yields the are actually lower than s ps equity yields. That is a rare occurrence, but it has been true since the financial crisis. The earnings yield of Corporate America is higher than their bond yields. Matt Jeff Gundlach pointed out this chart that i used in battle of the charts. To be fair, i lost, so maybe it is not a great chart. He points out that every time we see a drop of 60 basis point or more in s p 500 net Profit Margins, you see a coinciding recession or something indicating a recession to come. David everything will time is three times 1979, 1990, 2001, 2008. The only time we did not see it happen was 1995. Not think there is a recession coming, why do we see this earnings recession . Dan first of all, last year Earnings Growth was flat and slightly down. If you exclude energy and materials, the rest of the s p, up 6 . The story is the same with that chart. Energy and materials is clearly in a massive bear market. It is a massive correction after a 10year old market in energy and commodities driven by chinas growth. Matt energy would not see a drop in Profit Margins. Given an has opportunity to corporations because they have had cheap capital. Have they taken advantage of that respite . Done what they need to come back stronger . Dan the fundamental position for Corporate America largely is since the financial crisis, companies have been cautious about Capital Expenditures and spending. They have been restrained. They have been returning cash to shareholders. Chart, thing about that part of that profit recession is energy and materials. Another part that is missing is the dividend yield on the s p 500, 2. 4 , significantly higher than the 10year treasury bonds. Those are both reflective of the fact that corporate fundamentals check, health care, and consumer although consumer is such a large one. Matt we are going to go into those sectors in a second. The opening bell is up next on bloomberg. We are looking at gains, but they are slight. Stay with us for the start of trading on the new york stock exchange. From theseconds opening bell. Here with us is dan chung. Also with is his mark lehman, president of jm me of jme securities. It seems like there is a lot of bearish is out there. That is not a huge change from a few weeks ago. There is a lot of comparison. There is a lot of comparison. Theres a lot of disbelief in the market. Bull marketst hated in history, and the u. S. Is about to pounce on a tough block. I do not think that has changed. Matt at some point it has got to continue. Things are bad, people expect to break to the downside. When people are optimistic, we expect people to break on the upside. When one of those happens, it will continue in a big way, and i think it is to the upside. David there is also a question about the u. S. To the rest of the world. Can the u. S. Keep holding up the economy . Mark dan right now if you think about the conditions for the u. S. Consumer, they are the best they have been in seven or eight years. Unemployment is low, Commodity Prices have fallen. A 200plusoil is benefit to consumers. We have been focused on the different segments. For college graduates, the job market is extremely tight. Unemployment is closer to 2 . Meanwhile, you have housing prices below their highs in most surveys. Interest rates are extremely low. Finally, consumers are saving at a 5. 5 rate. Say consumers are spending and not saving enough. But maybe that is a good thing after what we have gone through. Lets go to julie hyman, who has a look at markets after the bell rang. Julie we have this increase in markets. Up about a third of a percent acrosstheboard as we have a rebound from yesterday. We have oil higher. We are continuing this rebound that has been going on more or less since february 11. This is a theme i have been talking about, how much of this rally is from a short squeeze. I want to take a look at the bloomberg here. Looking at the Goldman Sachs stocks onost shorted a rolling basis that is the white line. Here is the s p 500. We have a return on the Goldman Sachs index of 21 versus 9 in the s p 500. This has to do with heavily shorted energy shares, where we have seen a short squeeze overall. Matt so that is the Goldman Sachs index of shorted stocks. That is pretty cool. You can bet on the stocks most shorted. Julie in deed you cant those stocks have been doing well. This goes indeed you can. Those stocks have been doing well. Matt i do not know that the scale gets to us. 1228 at that chart percent return on the most shorted stocks. Julie that is the equivalent if you extrapolate the gain since 2011. David thanks for keeping us honest. Matt i am looking at the comp screen in a fiveyear tell. Julie going back to the 10 year yield, we are moving on to oil so lets go to oil. We are seeing an increase in the oil prices today. Again, something of a bounceback effect and a look ahead at the inventories report, which will be coming out at 10 30. Gold prices, after a riskon environment, are going lower. Individual stocks that we are watching at the open, we have been talking about chipotle and the closure of one of its restaurants outside boston after four employees got sick. They are cleaning the store, but this brings up concerns about illness related to the country about illness related to the company. A representative from Pershing Square, also bill ackman saying yesterday at a conference that the company could sell a stake in bausch lomb to raise cash. Upgrade, andg an the analyst is optimistic that it will be good for the stock. Those shares are getting a boost as well. As for the nasdaq, it is looking to snap its twoday losing streak. Live at the nasdaq with the latest. Abigail we have the nasdaq trading higher on the open. Tech,day we have big today it is biotech. One big tech name trading higher on the open is intel after the Company Announced it is buying an israeli company. This is an immersive company. A naturalition is fit, according to intel. I spoke to a bluechip analyst, and he says this will not move the need over intel, but shares of intel are down 10 on the year after the company gained a weak guide for the third quarter, perhaps setting the tone for big tech names this year. Matt tech sectors rallying right now. It isng of the nasdaq, climbing back from its 2016 low on february 11. Is the tech sector making a comeback after a tough start to the year . Lets bring in dan chung and mark lehman. What do you guys think . Tech has had a tough time, and for a while it looks downtrodden. But i did not hear a lot of bearishness on the actual business itself. Mark what we saw after the Fourth Quarter reports were the haves continuing to be the haves. Stalwarts continue their a cent higher. You are seeing the haves get stronger. Is notending dissipating, and i think you will still see those companies do extremely well. Valuation problem that we saw . Businesses did not seem to have big problems on the Balance Sheets. Dan there is a divide between havenots. Nd the hewlettpackard Enterprises Just split. It has undergone serious pressure. Their and ibm, transformation. Dan all of this is affected by the cloud, software service, and new community and new computing where they have not been positioned well. Facebook is growing they accelerated their Revenue Growth 50 year over year. They are a 20 billion your company. They are only capturing about 10 of the advertising dollars. Mark they get a world cup finals every single day. As an advertiser, that is a juggernaut that is accelerating every day. David no question that Good Companies are doing well. That does not address whether they are bargains, though. One analysts negative on tech not just because it is bad. He would rather go into banks that are undervalued. Mark that makes sense because each of the names that we just mentioned was down 30 a month ago. When you have your opportunity and everybody is looking for cover, you find the best names. Buying on a 52week high makes sure that makes you buying on these companies, you will get them. All these people on your show are telling people that the world is ending. It is probably not ending. It is accelerating for those companies. Ago, if youears look back to what we said, we said this was sort of ridiculous. David there was a good theme here about the haves and the havenots. Is there room for you guys, or do the haves hold much of that territory . Facebookszons and the occupy the territory so completely that there is no room . Dan the Network Effect is much stronger than 10 or 20 years ago. As a result they can be better, bigger for longer, so as an investor you have to be excited about the opportunity in facebook or google or amazon. There are times when you see ,xtreme value opportunities where for us we look for dynamic change. So turnarounds, where there is hidden value that is not being recognized. Sometimes the old guard is doing fine. They are under pressure today. Mix of highgrowth and also some extraordinary value. That is why i am kind of excited about the equity markets today and the opportunity for investors. If you look at it, it was highly correlated. Everything sold off at about the same amount. Julie, what do you have . Was buyingybody everything almost since the bottom we saw on february 11. This was looking at the s p 500 since the low on february 11. Tech is in the middle of the pack. It has not been a leader. It has been a leader on the downside year to date with the nasdaq as the underperformer of the three major averages. You have financials, materials underperforming. You have a snapback effect. It is interesting that tech is in the middle here. If you look at the top groups, they are cyclical groups, economically sensitive. The more defensive groups have not gained as much from the market bottom. Matt tech stocks have been way overvalued. I am looking at the pes of the tech sector in yellow, and the pe of the Broader Market in blue. There was a huge to virgins at the end of 2015, but you can see they have there was a huge divergence at the end of 2015. You can see why there is a buying opportunity. Matt mark this is an exciting technology. This was one of the few ipos and life sciences, had a struggle getting done since their ipo, which was about six or seven weeks ago. The stock has almost tripled. Maybe there is a short squeeze like you just described. This is the kind of technology that will revolutionize health care, and that stock has almost tripled. Ipos are finished and there is going to be and there is never going to be another ipo. The ipo is, what, at the beginning of february . Mark if you have an Innovative Technology and there is a time when people are nervous, that is when people do their fundamental research and have the chance to make big returns. David you also have macroeconomic factors here. Brexit,d about china, syria. How much does that limit your success in investments . Global assets as well, so International Emerging markets there those are key aspects. They are key in the u. S. As well. We take into account those. Actors we are concerned. , therope, one thing european economies as a whole are hard to characterize because they are very different. We tend to prefer the northern ones germany, the netherlands , sweden, the nordics and not so much the southern ones. We do not have anything in greece. We are underweight in spain. But europe is not worse than it was three years ago. It is slowly getting better, and it is completely misunderstood by investors. It is very much what Warren Buffett said people have a misperception about the u. S. , and they have a misperception about europe as well. It is hard to be negative and critical. David i do not hear too much negativity right now. Thank you, mark lehman, jmp securities. And dan chung will stay with us. Argentina is joining the International Bond market. That is coming up next on bloomberg. Matt this is bloomberg. Tomorrow, Erik Schatzker sits down with barclays ceo jeff staley. Nejra you are watching bloomberg. Valeant pharmaceuticals is increasing the size of its board and adding three independent directors. One of them is the vicechairman of bill ackmans hedge fund, Pershing Square capital. The lachman defended the company while it is being investigated over a mailorder pharmacy it used herein over a mailorder pharmacy it used herein over a mailorder pharmacy it used. The London Stock Exchange announced it was in talks to combine with another stock exchange. A Record Number of americans will take advantage of Lower Airline fares to travel this spring. Airlines for america says 140 Million People will fly in march and april, almost 3 higher from one year ago. That is your Bloomberg Business flash. Iegod i want to welcome d ferro argentina makes its longawaited return to the bond market. Is it still distressed . Is a too late to buy into argentina . Diego i would not feel that we are running out, but we are slowly working out. Was a change in regime, the regime change in terms of a friendlier government has materialized and has spread accordingly. So argentina is coming back to the Capital Markets, and i think other places are looking more interesting. Matt when we say investors are looking at argentina, we are not talking about stressed investors, right . Investor different then institutions and retailers that may be watching because you want to find a place that is in deep distress, not one that is recovering. If someone is bullish on argentina, you might not want to be there. Diego there is always a transition time between things getting fixed and the retail and real money that comes in. Usually when those things happen, people come in, a lot of the stressed investors are coming out. We are not the only ones betting on argentina when argentina was what when argentina was much more distressed. David so you say there is a new regime, not just at the top, but wall street bankers that are right near the top. What is your outlook Going Forward . What does argentina need to do Going Forward, and will they do it . Diego in terms of what they want to do, it is what any investor would like to because a lot of these people were educated in the u. S. , a lot of them work in the u. S. The challenges they are facing are large. The economy is in relatively weak shape in terms of high inflation and serious fiscal deficit. Promising, it looks it is not a fixed problem yet. David what about the currency . Diego the currency is free, and that has made a bunch of recent , m a that have not closed deals that have not closed. When you compare the argentine peso to the emerging market, it is not cheap. When you see what other countries, including brazil, have experience, argentina, the peso should be even weaker. David lets turn to something that appears to be distressed brazil. Are you more interested in brazil . Matt i am looking at wcrf on the bloomberg. I put the argentine peso in as a baseline. When you look at argentina, it is a bit misleading because the base that you are using for the devaluation is a currency that was obscenely overpriced. Seebsolute terms, when you from a longer standpoint, the is more extensive than the colombian peso or the brazilian peso. With brazil, it is not necessarily the same as it was with argentina. The macro country story, the corporations in brazil are what make it interesting. David you invest globally. Are you in latin america . Dan we are in latin america. Mexico is the biggest overweight. Brazil we are underweight and we are watching carefully the cause of the president ial scandal there. You said something very important. The perception of change and the reality of change are both important triggers for returns but also can be mismatched. In other words, the perception of how quickly argentina perceives a situation versus what they actually will do can create opportunities. Last two weeks, brazil has been one of the most interesting places to invest. After the news on the intensified investigations, you see the vespa take off. I have a chart here. It is off the charts. We saw Petrobras David it jumped 15 . Matt why are investors piling undern you see lula investigation . It does not make a lot of sense. Economicazil has problems, but the main problem brazil has is a political one. People are looking at brazil as a regime change situation. A lot of people hope that the Current Administration would leave. I do not think that is as likely as a lot of people think, but that does not mean the brazilian economy is doing reasonable enough to muddle through until the elections. That goes back to the previous point about expectations versus reality. The situation in brazil is better than what people now think. That is why it is a good place to invest. David will brazil become in charge will brazil become argentina in terms of regime change . Diego the political situation is roughly stable, and as long as it does not get out of context, it is a good place to put your money. David thank you both very much for being with us today. Vonnie quinn joins us for a look at what is coming. Vonnie we have the ceo of qantas airlines, generating extraordinary amounts of cash. When asked what they are going to do with that cash, and how they cope with weaker growth in china we will also speak with head. Il and gas about we speak will also speak with justin trudeau, an interesting leader, with our own john micklethwait. Matt thanks very much. We will get our final thoughts next on bloomberg. As text stocks turned down, the nasdaq now negative. Matt that does it for bloomberg. Tomorrow is a big day for the European Central bank. We will be carrying ecb president mario draghi at 8 30 a. M. Today was great. David they were all great. You were great. Matt nice chart, by the way. David see you tomorrow on bloomberg. Find fantasy shows. When it comes to the things you love, you want more. Love romance . Get lost in every embrace. Into sports . Follow every pitch, every play and every win. Change the way you experience tv with x1 from xfinity. Hey hows it going, hotcakes . Hotcakes. This place has hotcakes. So why arent they selling like hotcakes . With comcast Business Internet and wifi pro, they could be. Just add a customized message to your wifi pro splash page and youll reach your customers where their eyes are already on their devices. Order up. Its more than just wifi, it can help grow your business. You dont see that every day. Introducing wifi pro, wifi that helps grow your business. Comcast business. Built for business. Vonnie from bloomberg World Headquarters in new york, i am vonnie quinn. Mark live from london, i am mark barton, this is bloomberg markets. Vonnie we take you from bloomberg to new york we take you from new york to london to washington in the next hour. Candidates faceoff tonight in miami ahead of a big five state showdown, next week. Than 24 hours, we will learn if the ecb is ready to pull the trigger on more stimulus measures. Faces choices as he tries to pop up europes economy. Vonnie canadas Prime Minister is heading to the white house for his first dinner. This agenda is laid up for his administration and the hurdles he paces